Public Enterprises South Africa

High-Cost Airline

2007-02-02T13:06:00.000-08:00

Business Day February 1, 2007
ONCE again, our national carrier, South African Airways (SAA), finds itself in financial trouble.

And again, the national treasury looks set to wade in and rescue the ailing airline. Just how much longer can this go on?

The answer, quite simply, is for as long as the state continues to own the airline. It was not that long ago that the treasury and Transnet had to bale SAA out after it lost billions due to a disastrous hedging programme which saw it dipping into technical insolvency twice.

Those were exceptional circumstances and it is quite clear that had government and Transnet not stepped in, SAA would have gone bankrupt. Apart from the obvious distress, loss of jobs and loss of past investment, there is actually a case to be made for allowing SAA to go under. With a true open-skies policy, the slack would quickly be taken up by private operators, a scenario that would allow for far greater competition, improved customer service and stable, possibly even lower, prices.

That, quite clearly, is not going to happen. Government is obviously determined to keep SAA afloat whatever the cost to the taxpayer, arguing that it performs a strategic function in establishing business and tourism links. That being so, the challenge is to implement a strategy that will lead to the airline making sustainable profits so that it can ultimately be sold off.

Despite several turnaround strategies, the airline remains in financial trouble. At the interim stage, operating costs were up 7% while the net loss stood at more than R650m and its balance sheet was decidedly shaky. The signals coming from Public Enterprises Minister Alec Erwin are that SAA is heading for a significant loss for the full year. It is unclear how much SAA's low-cost carrier, Mango, has contributed to this, but suspicion remains that Mango is being propped up by its parent despite ongoing insistence that it's a standalone entity.

Erwin's rationale is that SAA's balance sheet needs to be strengthened so the airline can buy more planes to take advantage of growing passenger numbers. To do so, SAA will have to be recapitalised, probably to the tune of R4bn. Last year, SAA CEO Khaya Ngqula indicated the airline would raise this cash on the capital markets. The fact that the treasury is being asked to consider supporting the airline suggests finance from the markets would have come at a punitive cost, given the state of SAA's balance sheet.

So once again we have exceptional circumstances and SAA has to be saved. This time around, however, government needs to set SAA management clear targets that are publicly agreed to and known. There is no need for yet another new strategy aimed at turning the airline around. There have been more than enough of those, and Ngqula's focus on people, patronage and profit is perfectly acceptable. A plan based on raising morale, boosting service, cutting costs and improving efficiencies is the right way to go.

But it needs to be implemented by focused, dedicated managers who understand the business. The problem with the many turnaround strategies adopted by SAA is that none has been given enough time to take hold. Each time a new CEO has been appointed -- and there have been five since 1994 -- a new strategy is adopted. Enough already.

So while we support the plan to ensure that SAA is commercially viable, the end goal must be the sale of the airline. Last year, Ngqula suggested that SAA should be listed by 2010. Erwin has left the door open for a listing, but is vague on the timing. Setting a clear deadline for a listing, subject to market conditions, is the best way to ensure management pulls out all the stops to get the airline back on track.

The rat inside Koeberg

2007-02-02T13:03:00.000-08:00

Moneyweb Thu, 01 Feb 2007
Linda Mti, newly elected head of 2010 World Cup security, is a very jolly fellow. Early in November last year he was caught, allegedly skunk drunk, and arrested for drunken driving. He had rudely reshaped someone’s rear bumper, a modern essential which, sadly, is not nearly as strong as when made, many years ago, from steel burnished with chrome.

Not long after this incident, Mti resigned as commissioner (a.k.a. The Boss) of the Department of Correctional Services (DCS). One privilege of Mti’s seniority is that he was also the DCS chief accounting officer. Last year, under Mti’s watch once again, the DCS was awarded, for the fifth consecutive year, a qualified audit from the auditor-general (AG). This was a hell of a thing.

The auditor general hit on the DCS for on-going problems with collections of debt owed by staff, never-ending issues on control and registration of assets, on-going glitches relating to medical expenditure, headaches over the validity and accuracy of housing loan guarantees, unsatisfactory internal control issues over leave, salaries, performance agreements, suspensions, home owners’ allowances, losses, payments, journals and budgets. It was one hell of a thing.

Mti was too busy keeping unruly inmates at bay, and partying. One little snippet from the auditor-general’s finding was the “standard danger pay” being paid to suspended employees. Staying at home these days is, after all, more dangerous than working in a prison. But nobody took the auditor-general’s report too seriously, because everyone knows that correctional services is simply the best-run government department. The minister of correctional services, Ngconde Balfour, has lots to be jolly about.

Late last year media reports detailed how Sondolo IT (a subsidiary of Bosasa, which is another story) was apparently involved in an underhanded tender arrangement with DCS. It’s said that Sondolo IT was “intimately” involved in drawing up a DCS security tender, worth R237m, which was later awarded to, well, Sondolo IT.

Reports about Sondolo’s alleged shareholders are yet to be denied. The characters involved apparently include Titus Mafolo (a former ANC MP, now president Thabo Mbeki’s political advisor and chairman of something called the Native Club), Ronnie Mamoepa (spokesperson for foreign affairs), Gavin Watson (CEO of Bosasa), and Seth Phalatse, former chairman of the Strategic Fuel Fund. Prison inmates didn’t qualify.

But back to Mti, a jolly fellow and a man of extraordinary talent. Not only is the auditor-general investigating Mti’s financial management of DCS, but Mti is also subject of an investigation by the Public Service Commission. It’s clear, given the country’s uninterrupted power supply, that Mti should moonlight his talent as part-time CEO of Eskom, the smoothest running entity in the public sector. The dough’s good; outgoing Eskom boss, Thulani Gcabashe, was paid R5,2m in the financial year to March 31 2006, following the eye-popping R13,1m he took home in the previous year.

Eskom needs an invincible, Teflon-coated character like Mti. Political mandarins such as Finance Minister Trevor Manuel, who has rubbished private sector estimates of the costs of power cuts to the economy, are abusing Eskom. The minister of public enterprises, Alec Erwin, another mandarin, last year told the world on national television that sabotage was to blame for the shutdown at Koeberg, a nuclear power station.

Erwin dodged parliamentary censure thanks to the antics of ANC chief whip, Mbulelo Goniwe, later defrocked for sexual misconduct. Don’t forget also that the-then minister of minerals and energy, Lindiwe Hendriks, explained the Koeberg accident as “…growing evidence of a linkage of some of these events to resistance to the transformation drive by the government”.

Oh behave! Insiders know that it was an oversexed rat that caused the problem at Koeberg. For some, that may be too much detail, but bear in mind that the new minerals and energy minister Bulelwa Sonjica, who’s really in charge of Eskom, has said little, if anything, specific.

This week she told a seminar that Southern African countries need to fight poverty through the provision of energy. These countries, the minister, explained, “needed to improve and increase energy supply to their citizens as this would contribute to poverty alleviation”. Those who know the inside story about Koeberg know that there’s a rodent in every good story.

Treasury will fund SAA

2007-02-02T13:02:00.001-08:00

SABC January 30, 2007
The national treasury has been asked to pump money into South African Airways to smooth its passage from being under the Transnet umbrella to a stand-alone state enterprise.

Alec Erwin, the public enterprises minister, told Parliament that cost-cutting and retrenchments are also on the cards for SAA. The South African Transport and Allied Workers Union (SATAWU) says it will fight retrenchments. Union leaders are meeting with SAA about possible job losses on Friday.

South African Airways will soon be under the direct control of the department of public enterprises. Legislation moving through Parliament will allow it to sell shares to private interests. But the government will retain overall control. Erwin says the recapitilisation will be accompanied by cost-cutting efforts to improve the airline's profitability. Erwin was speaking during a parliamentary hearing on the law which will take SAA out of the Transnet group.

The law will allow the sale of shares in SAA to private interests. However, Erwin says: "Our experience has shown us that it is naive, it is unrealstic to expect that major multi-nationals, be they airlines, telephone companies, or whatever will automatically have the same strategic objectives in your economy as you have as a State, as a government."

Erwin, says: "We are in discussion with the treasury. We may need some support for the essential capitalisation that has to be put into SAA within the next year. But it will then be under pressure to perform. Ewin says SAA should not expect to be bailed out by government whenever it gets into financial trouble - and costs will have to be sliced.

The minister told reporters: "Across the board in SAA we have to reduce the cost base, and it will include workers. It will have to be negotiated with the unions. It may well be tense but we have no option."

The Satawu says it was warned towards the end of last year that up to 3 000 workers may have to go. But it has rejected this and has called for cost-cutting in other areas. SAA says it will follow due process with labour and is committed to a more streamlined business. Erwin agrees that it has been a very tough year for SAA as operating costs have soared.

Erwin makes U-turn, will back SAA bailout

2007-02-01T11:25:00.000-08:00

Business Report: January 31, 2007
SAA will receive recapitalisation of hundreds of millions of rands from the government in the next few months to enable it to acquire more long-haul aircraft to expand its route network and increase the number of services.

This is a reversal of previously stated policy that followed an earlier recapitalisation when the airline lost R7 billion as a result of a disastrous decision to hedge against a falling rand when in fact the currency rose.

It was stated at the time that this would be the last major recapitalisation SAA would receive.

SAA chief executive Khaya Ngqula said last October that it would need recapitalisation to increase its fleet, but the money would come from investment by financial institutions.

SAA has been in discussions with Airbus and Boeing for up to three new planes, which could cost more than R3 billion. A spokesperson said details of the aircraft SAA would acquire were not available. But both manufacturers have full production lines at present and industry sources said SAA might have to lease planes rather than buy new models.

SAA's newest planes in use on long-haul routes at present are Airbus A340-300s, with a list price of $196 million (R1.4 billion) and A340-600s with a list price of $226 million.

The list price of new Boeing 777s ranges from $178 million for a 777-200 to $264.5 million for a 777-300ER. But prices are normally negotiable according to how many aircraft are ordered.

Discussing the SAA Bill, which makes SAA a stand-alone government-owned entity and makes provision for it to become a public listed firm at some time in the future, Alec Erwin, the minister of public enterprises, said yesterday in parliament that listing SAA would make it easier for it to attract investment.

If it were possible to make an initial public offering for SAA in the next 18 months the government would do it. But a favourable time to do so could be years in the future.

In the meantime, the airline's passenger numbers were rising nicely, he said. It needed to expand its fleet to take advantage of this and it could not be left with a weakened balance sheet, unable to do so.

"We will seek support from the treasury in the next essential capitalisation that has to be put into SAA in the next year. This comes under essential circumstances with exceptional needs," he said.

Discussing the SAA Bill, Erwin said the government would retain a controlling interest in it and in regional airline South African Express, which would also be moved out of Transnet.

SAA, as a national airline separated from Transnet and reporting directly to the government, would provide critical tourism and business links that would assist in creating international hubs in this country.

He stressed that SAA would not be able to "knock on the door" and receive money whenever it needed it.

Big improvements had been made in its finances. But it was not yet out of the woods and steps would have to be taken this year to improve its finances. It would have to reduce its costs across the board. Negotiations were in progress with the trade unions towards achieving this and it must improve its rate of return per passenger kilometre, he said.

But news that the airline would receive help from the government was received with indignation yesterday by representatives of European airlines competing with SAA on international routes, who are forbidden by the EU to receive subsidies from their governments. The representatives asked not to be named.

Gidon Novick, the joint managing director of BA/Comair, said the news came as no surprise since he believed that both SAA and its low-cost airline Mango were "making huge losses".

Time to Hit the Off-Switch

2007-02-01T11:20:00.000-08:00

Business Day: January 31, 2007
IT WAS about 2am on a warm Highveld morning when Eskom transmission MD Jacob Maroga realised a crisis was looming.

One power station after another started to go down and in the next half hour Eskom lost about 1600MW from the system.

Then one of the units at Koeberg, SA's only nuclear power station, went down. Given that several power stations were out for scheduled maintenance, and that the reserve margin, or spare power that Eskom keeps for emergencies, was at a low 8%, Maroga was acutely aware that trouble lay ahead.

How right he was. Maroga swiftly assembled a small but high-ranking team and by 4am they had gathered to decide on how to manage the crisis. Eskom had lost more power than it had available in the system, so the options were limited. Blackouts were inevitable. Every two hours, a different area in the country was cut off and by 11am, Eskom was starting to restore power as stations started to come back on line.

Given that the response time of municipalities, which distribute much of the country's power to homes and businesses, tends to be slower, power was fully restored only towards the end of the day. That day was January 18.

The events of January 18 will serve as an important lesson for Eskom. Critically, the utility must learn that, in its attempts to placate concerned users, it should not promise what it cannot deliver.

When faced with rolling blackouts in Western Cape last year, Eskom promised these would not spread to the rest of SA but if demand continues to grow at its present pace, Eskom simply will not be able to keep that promise this winter. With a reserve margin of 8%, Eskom is stretched.

Another lesson is the importance of communication. Inevitably, there was a hue and cry among residential, business and industrial customers when the power went out on January 18. It is difficult to test the veracity of predictions from business organisations that the cuts cost the economy hundreds of millions of rand, but it is obvious that blackouts affect many businesses. Nevertheless, these predictions irritated Finance Minister Trevor Manuel, who dismissed them as "utter garbage".

Equally, the rather disingenuous comment from Public Enterprises Minister Alec Erwin that he was confident the entire country would not be plunged into darkness did little to help. Of course not. That would require every power station in the system to trip simultaneously, the chances of which are slim.

And while it is worth recording the reasons why we arrived at this situation -- if only to avoid a repeat of it in future -- we need to get past the blame game. It is well documented that government did not allow Eskom to build new power stations in the late 1990s and early 2000s, when the power utility started making noises that it was running out of excess capacity. Government did this because it wanted to liberalise the electricity market, unbundle Eskom and get the private sector to build the next generation of power stations. That strategy, which was in line with global trends and was widely supported, was overturned in 2004 when government decided state-owned entities would drive infrastructure investment.

The point is that SA has an acute problem looming with its electricity supply. Eskom executives admitted as much in a briefing last week. Rather than ignoring the problem, or ridiculing concerns about it, it would be far more helpful if we faced up to the issue and communicated ways of dealing with it. Because, as CEO Thulani Gcabashe says, this is not Eskom's problem alone -- it's everyone's and the only way we are going to minimise the effect of power cuts is if there is a concerted effort to do so.

The next three years will be critical. It will take at least that long before the first unit of projects Alpha and Charlie -- the mega six-pack power station to be built in Limpopo -- comes on stream. Alpha and Charlie will be the first new base load stations to be constructed in SA for 20 years. In the interim, Eskom expects to deliver about 3500MW of power from mothballed plants and other sources, which is far less than is needed in the short term. There are other supply options, such as importing electricity. But, critically, there must be a huge push to get people to use less.

It will be hard to get South Africans to use less power as electricity has always been cheap and plentiful.

No longer. The real need is to reduce usage at peak times -- in the morning and evenings -- and that means residential consumers. Reduced and more efficient use is needed -- such as installing geyser blankets, solar heaters and compact fluorescent heating; turning geysers off when not in use; and limiting the use of underfloor heating.

What Eskom needs to achieve in a short time is a dramatic change in consumer behaviour.

It won't be easy and at the very least will need the buy-in of government and municipalities but in the short term, it's the only way to keep the lights burning.

Eskom power scramble to keep SA plugged in

2007-01-31T11:10:00.000-08:00

Business Day: 29 January 2007
ESKOM has unveiled an emergency plan to avoid rolling black-outs this winter and beyond, with spiralling demand for power and rapidly dwindling excess capacity forcing the utility to admit it is heading for trouble.

The plan comes after countrywide power cuts this month placed Eskom, which supplies 95% of SA’s electricity, under severe pressure from business and consumers. This is particularly so as the utility promised less than a year ago that last year’s power cuts in Western Cape would not spread to the rest of SA.

Eskom freely admits it got its growth estimates wrong, having forecast 3% growth in electricity demand against actual demand of 4,5%.

“Nobody forecast this type of growth. We are seeing capacity problems throughout the economy,” said CEO Thulani Gcabashe.

As a result, Eskom will increase its five-year, R97bn programme by doubling capacity at the planned R26bn coal-fired power station, dubbed Project Alpha, which was originally due to deliver 2250MW. The additional 2250MW, called Project Charlie, could come at a price tag of up to R30bn. Further capacity additions sanctioned by the board are in Western Cape — a 100MW wind farm and an additional 1000MW to Atlantis, an open-cycle gas turbine plant.

The utility is also looking to regional neighbours for help, and is talking to Namibia and Zimbabwe about developing a corridor to bring power to SA. Gcabashe was in Namibia this month for talks with Kudu Gas about bringing the 800MW project on stream as soon as possible.

However, the biggest appeal Eskom will make is to power users, asking consumers to dramatically cut back on power use, particularly at peak times in the mornings and evenings when demand is highest.

Gcabashe said on Friday that Eskom could not solve the looming power crisis alone. “As long as it’s Eskom’s problem, we won’t manage. We can’t meet demand for electricity through building power stations. We need a drastic change in the behaviour of power users,” he said.

Eskom is working with municipalities and the minerals and energy department on the plan to reduce demand at peak periods and ensure electricity is used more efficiently. This is likely to involve encouraging people to use geyser blankets, instal solar heaters and compact fluorescent lighting, and possibly incentives. The aim is to reduce demand by 3000MW over five years.

Eskom has total capacity of 36 400MW, of which about 8% is spare capacity, against an international norm of 15%. A further 2000MW will be added this year by bringing mothballed power sta-tions back on stream as well as the gas turbines.

Consulting group NUS has warned Eskom is cutting it fine. GM Stephan Dolk said Eskom’s spare capacity was not adequate, with projections showing this year’s winter would be the worst ever.

“If there is any weakness in the system, it will show itself this winter,” he said.

Government, however, remains undaunted. Public Enterprises Minister Alec Erwin is confident SA will not be plunged into darkness while Finance Minister Trevor Manuel said estimates by business of lost production were “utter garbage”.

Erwin, Eskom fail to see the obvious

2007-01-26T23:12:00.000-08:00

21 January 2007
Public Enterprises Minister Alec Erwin has set up a team to investigate the cause of the widespread power cuts that hit South Africa this week, and which threaten to continue over the next few days — and beyond.

But they need not look much further than Erwin himself and the management of the state power company, Eskom.

The cause of the power cuts is quite clear: a costly failure by the Department of Public Enterprises and by Eskom to properly manage South Africa’s electricity infrastructure.

It has been known for years that South Africa’s capacity to meet its electricity needs is running out because of its booming economy.

This lesson was rammed home last year, when a turbine at the Koeberg nuclear power station was damaged through carelessness. The Western Cape economy lost untold millions of rands because of widespread and persistent blackouts.

It is impossible to measure accurately the damage that this week’s widespread blackouts inflicted on the economy. Banks, restaurants, retailers and offices were disrupted for hours.

Investor confidence in this country — which sells itself on its sophisticated infrastructure and low power costs, among other factors — will undoubtedly take a knock.

Eskom knows that it must manage South Africa’s electricity resources carefully until the power infrastructure is successfully upgraded. But the utility has managed to put itself in a situation in which, by some reports, eight power stations were hit by problems that forced them to shut down generators.

Sadly, Koeberg, which is supposed to be functioning better than ever after its costly repairs, was on the list of problem power stations.

Eskom officials put some of the blame on an unexpected surge in demand while maintenance work was under way at some power stations. Given that Eskom has virtually no excess capacity, monitoring and managing demand for its limited resources should be a priority.

So, years after Eskom promised to sort out South Africa’s power shortage, and after the state started allocating funds to infrastructure development, the utility still cannot cope with a surge in the demand for energy in the middle of summer.

How then can we have faith that its plans to build power stations and revitalise the electricity transmission infrastructure over the coming years are well under way and will succeed?

So it comes as no surprise that Fifa is increasing the cost of the World Cup stadiums by demanding that they have back-up generators, or that businesses are investing in their own generators.

It is estimated that it will take between five and 10 years to get South Africa’s power generation and transmission capacity up to speed.

In the wake of this week’s blackouts, Erwin announced that he was confident the country would not be plunged into darkness.

Given the falsity of his accusations last year that Koeberg had been deliberately sabotaged, and the way in which he and Eskom have been handling the power crises so far, his remarks come across as somewhat hollow.

Erwin urged to take backseat in energy crisis

2007-01-26T22:36:00.000-08:00

January 22 2007
Public Enterprises Minister Alec Erwin should stop acting as the government's spokesperson on national electricity problems as he had lost credibility, the Democratic Alliance said.

"Public Enterprises Minister Alec Erwin neither bears sole political responsibility nor is he competent to act as government's spokesperson on the national power problems and particularly not on Koeberg," DA minerals and energy spokesperson Hendrik Schmidt said in a statement on Monday.

"Minister Erwin lost all credibility he had on the issue of power outages last year when he notoriously stated on national television... that sabotage was to blame for the shutdown at Koega
when in truth it was... due to Eskom's negligence and poor maintenance of the nuclear power plant," he said.

Schmidt also accused Erwin of having lied about the issue in Parliament.

"He wilfully misled Parliament by denying that he had made the false statement despite having been presented with video evidence to the contrary," he said.

He called on Energy Minister Buyelwa Sonjica to start accounting to the South African public for the electricity crisis.

"While Minister Erwin in his portfolio bears political responsibility for the shutdown as the manager of government's shares in Eskom, Koeberg's operator, Minister Sonjica, as the political head in charge of ensuring energy supply and regulation, has the more pertinent political platform from which to account to the public," he said.

The lack of security concerning South Africa's energy supply and the negative perceptions it can have as a result cannot be afforded in the current climate where the attainment of job creation and
economic growth goals remains a tenuous pursuit, said Schmidt.

Blackouts: R1m-per-day penalty proposed

2007-01-26T22:01:00.000-08:00

January 24 2007
A proposed bill to amend electricity regulation could see distributors like Eskom and municipalities slapped with fines of up to R1-million a day if blackouts occur.

"If you had blackouts, there could be recourse," said Ompi Aphane, chief director of electricity at the department of minerals and energy.

He was addressing the National Council of Provinces' (NCOP) select committee on economic and foreign affairs on Tuesday.

The amendment bill follows on the heels of the Electricity Regulation Act, which was passed last year but left out some key regulatory issues.

The Electricity Regulation Amendment Bill also looks at investing in infrastructure and having a clearly defined regulatory regime.

"This regime provides for penalties of up to R1-million a day," Aphane told reporters outside the committee room where he addressed the NCOP committee on Tuesday.

"It addresses issues like quality of supply and refers to the frequency of disruption and will have an enforcement regime," said Aphane.

He said the enforcement regime would see electricity distributors fined up to R1m a day if their own negligence was the cause of blackouts.

Until now, the National Ernergy Regulator of South Africa (Nersa) could only slap Eskom with a R500 penalty, but this would change if the proposed bill was passed.

Power cuts cost Western Cape businesses up to R5-billion last year.

The bill also seeks to tighten loopholes around the proliferation of different tariffs - approximately 2 000 - that result in the unequal treatment of domestic end-users.

Aphane was quick to warn that the proposed legislation was not to be confused with the structural adjustment process conducted through regional electricity distributors.

He also highlighted that regulators had the power to intervene if distributors - especially municipalities - were not meeting their mandate of providing electricity.

It was also highlighted that all distributors would have to hold a licence issued by the regulator.

Meanwhile committee chairwoman Nosipho Ntwanambi told the Department of Minerals and Energy that it would not be ready to process the bill before the end of March.

"February is not the possible month to finalise the bill," she said.

"We can do so at the end of March."

The key issue in the proposed bill was that if the industry was not managed appropriately, said the department, it would not be sustainable.

The bill was also expected to address the insufficient investment by municipalities in infrastructure and to extend the regulatory powers of Nersa.

On the country's electricity generation capacity, the DA hit back at Finance Minister Trevor Manuel's "arrogant rubbishing of private sector estimates" of the spiralling costs of sporadic power cuts.

"Minister Manuel's assertion that South Africa's electricity generation capacity was sufficient is, in his own words, 'complete and utter garbage'," said the party's minerals and energy spokesperson Hendrik Schmidt.

"Moderate economic growth will see demand increase by 1 500MW annually.

"Currently, South Africa has only 1 000MW spare generating capacity at maximum demand, indicating that demand will soon outstrip supply and that South Africa's electricity generating capacity is woefully insufficient."

The Cape Town Regional Chamber of Commerce and Industry said yesterday that it was disappointed Eskom had not warned it about the increased risk of power cuts.

"From what we now know, it was clear to Eskom that they had very little capacity in reserve and any problems would mean load-shedding," said chamber president Janine Myburgh.

"It would have been a simple matter to alert business to the increased risk and encourage savings."

Skills audit needed at Eskom

2007-01-20T08:03:00.000-08:00

19/01/2007
Solidarity, the second largest trade union in Eskom, on Friday asked Public Enterprises Minister Alec Erwin to instruct a task team to perform a skills audit in the company.

The team is investigating problems in the parastatal.

Solidarity's request comes after that trade union warned Eskom last year already that the group was heading for a crisis, due to the exodus of skilled staff, it said.

According to Solidarity spokesperson Jaco Kleynhans, the country's present electricity supply crisis can be directly attributed to the fact that experienced, well-trained people are leaving Eskom in droves to seek better jobs in the private sector and abroad.

Kleynhans said: "Since 1994, Eskom has lost 15% of its skills. Out of the 60 engineers at the Koeberg Nuclear Power station, 8 resigned in a period of two years and were not immediately replaced.

"A study conducted among our members in Eskom last year showed that as many as 75% of them are thinking of looking for other work."

The skills audit that is being demanded by Solidarity will entail an investigation into the company's current skills levels, compared to 1994.

"We want the skills audit to point out where the Eskom skills shortages are and to estimate potential future skills losses.

"Only when this information is available can steps be taken to halt further skills losses. The trade union hopes that the task team's efforts will lead to proper plans to tackle the skills problem in Eskom."

"Solidarity decided to approach the minister with this proposal because it appears that Eskom, almost a year after the trade union had offered numerous suggestions, has not made any discernable progress. Solidarity also submitted a copy of the report that was sent to Eskom last year, to Minister Erwin."

Eskom answers demanded

2007-01-20T08:02:00.000-08:00

January 19 2007
The mayor of Cape Town and the national ANC, in rare agreement, have called on the government to come clean on Eskom's latest blackouts.

Electricity cuts shut down suburbs and towns across the Cape on Thursday as Eskom went into emergency mode to control the effects of a national power shortage.

Mayor Helen Zille said on Friday: "We have the sense that Eskom and the minister (Public Enterprises head Alec Erwin) are not levelling with us. Mayco was assured last year by Eskom chief executive Thulani Gcabashe that the problems were over."

Zille was referring to the rolling blackouts that hit the Cape last year. She said the problems were clearly not over.

Zille said the public had a right to call Erwin to account for whether Eskom was capable of managing such a critical resource.

The ANC, in turn, has demanded that the government investigate circumstances surrounding yesterday's power cuts.

Describing the blackouts as "unfortunate", ANC secretary general Kgalema Motlanthe said the party would call on the government to look into the matter.

"We hope … it will be able to develop contingency plans so that in future it will have back-up systems," he said.

The ID said it was time Eskom was punished for the blackouts.

"Some form of punitive action needs to be meted out in the form of fines, which can be used to compensate small businesses which are often left to bear the brunt of Eskom's incompetence," ID MP Lance Greyling said.

DA MP Hendrik Schmidt said the blackouts had serious economic repercussions. The party would be submitting a parliamentary question demanding an explanation for the shortages and why the public had not been given notice of the shutdowns.

The Freedom Front Plus has called on the National Assembly's Portfolio Committee on Minerals and Energy to get Eskom to account for the electricity crisis.

FF+ MP Willie Spies said Eskom had vowed that last year's power crises in the Western Cape would not be repeated.

"It is clear that either Eskom has seriously mistaken itself or it has misled Parliament about its capacity to fulfil the increasing demands for electricity, and the organisation will have to come and explain," he said.

Friday Eskom's Jacob Maroga clarified what had caused the crisis. South Africa's peak demand was around 36 000 MW. The country had a full capacity of 40 000MW.

However, from about September to May, average usage usually dropped to around 31 000MW.

"(So) we do a lot of planned maintenance at power stations (during this time)," Maroga said.

This had dropped Eskom's capacity by about 4 900MW down to about 35 100MW.

In addition, a number of power stations in Mpumalanga and Limpopo had had technical problems in the last few days.

Then Koeberg's Unit 1 tripped early on Friday morning.

These problems had cost Eskom a further 4 600MW. On top of this, national demand rose by about 1 000MW higher than Eskom had anticipated.

Eskom spokesperson Tony Stott said the Koeberg plant would be back online by later today but warned that load-shedding was still a possibility as Koeberg only supplied 50% of Cape Town's electricity and the rest of the supply came from units in Mpumalanga.

Public Enterprises ministry spokesperson Gaynor Kast said: "The minister is satisfied that a competent team has been assembled to establish the cause of the event and he receives regular up-to-the-minute reports."

State's broadband plans fall apart

2007-01-20T07:17:00.000-08:00

18 January 2007 11:59
The government’s ambitious new broadband company, Infraco, may be still born with internal dissent and regulatory uncertainty currently blocking progress on the deal to create it.

Andrew Mthembu, the lead consultant on the project, appears to be on his way out, after Director General of Public Enterprises, Portia Molefe, declined to renew his contract beyond January.

Meanwhile, tardiness at the department of communications, disagreement with the private shareholder, the Indian conglomerate, Tata, and a lack of clarity over the licensing requirements for the company are making it impossible to finalise the transactions that would create Infraco, according to people familiar with recent discussions about its future.

Mthembu could not be reached for comment, but sources close to the project told the Mail & Guardian that Molefe had decided to terminate his involvement with the company, and suggested that he had clashed with Tata over both pricing -- which the government wants kept to a minimum -- and the details of a proposed undersea cable.

Public Enterprises spokesperson Gaynor Kast flatly denied those claims. “The allegation that Andrew Mthembu’s contract will not be renewed is completely unfounded,” she insisted, saying “everything is on track”.

Mthembu, previously managing director at Vodacom, was hired by Public Enterprises Minister Alec Erwin a year ago, and he has been the key architect of Infraco. He devised the arrangement to transfer Eskom’s extensive fibre-optic network to a new company, in which the government would hold 74%. The remaining 26% was to be held by VSNL, a subsidiary of Tata, which owns a similar stake in the second network operator, Neotel.

Finance Minister Trevor Manuel in his October medium-term budget policy statement announced an initial allocation of R647-million in government funding for the company, which, officials say, was earmarked for the acquisition of Eskom assets by Infraco.

The idea was that Infraco would sell the capacity available on this network to, Neotel, enabling it to bypass Telkom for a substantial portion of its local bandwidth needs without raising fresh capital.

It was originally envisaged that Neotel would buy the Eskom assets outright, but with other Neotel shareholders short of cash, the Infraco plan enables Tata to get same effective share of the Eskom backbone through a separate structure. The government, meanwhile, gets to keep firm control of Infraco’s pricing. That, it seems, created a sharp -- and predictable conflict between Tata and Mthembu’s team, which has not been resolved.

The second -- and more controversial -- element of the plan was for Infraco to lay a new undersea cable, bypassing the SAT 3 cable that is currently controlled by Telkom. The intention was to boost dramatically international bandwidth and bring down the ruinously high access costs that international investors and local businesses have repeatedly complained are a constraint on growth.

The new cable has always been a sticking point with the department of communications, which sees Infraco as a threat to its own plans. For three years communications officials have been punting Sentech, the state owned signal distribution company, as a significant player in the local bandwidth market and they have recently been pinning their hopes on the new East African submarine cable (EASsy) to help break Telkom’s stranglehold on international traffic.

Sources sympathetic to Mthembu say Tata is now trying to frustrate plans for a third cable because it has already cut deals to gain access to the existing connection and Neotel can profitably exploit those deals without interference from a government shareholder, which will insist on low prices and tight margins.

Tata had not responded to requests for comment at press time.

And, despite a fiat from Erwin to “get it done”, the weakness of the regulator, Icasa, and the lack of enthusiasm from the department of communications means neither Tata nor the government knows just what the rules governing the new operator would be.

Persistent complaints about the local bandwidth market were highlighted again this week when Reuters CEO Tom Glocer told Business Day that Telkom’s high prices and “flaky” quality were preventing his company from expanding its local presence.

President Thabo Mbeki has repeatedly voiced similar concerns, and Erwin has staked considerable personal prestige on Infraco as a solution. He seems to have convinced the Cabinet. After he presented his plans to the presidency his critics at communications fell in behind the scheme.

Director General in the department of communications Lyndall Shope Mafole told the M&G through a spokesperson that Infraco was a government project, not a public enterprises project, and there was no dispute over it.

In an interview last November Erwin told the M&G that the Infraco cable would not only open up the market, but would underpin South Africa’s bid for the giant Square Kilometer Array telescope at Sutherland (which needs considerabe dedicated bandwidth) and help to service the demands of the 2010 World Cup.

He said he believes it will play a crucial role in unlocking economic growth.

Erwin is unlikely to change his mind, but the complexity of the unresolved issues will mean he must muster considerably more support to drive the plan through.

The National Treasury has made space in the budget for Infraco, but in the clearest sign that the project is in difficulty, crucial documentation that would unlock its formal approval for the deal, and enable it to release the cash, has yet to leave Molefe’s office.

Russian warheads to fuel SA

2007-01-05T07:44:00.000-08:00

South Africa will use uranium downgraded from old Russian nuclear warheads to fuel its planned pebble bed modular reactors (PBMR), according to public enterprises minister Alec Erwin.

"On the PBMR, that uranium we will bring in from Russia, which is down-blended weapon graded uranium," Erwin told Deutsche Presse-Agentur dpa.

"The target is for 2012 to build the first reactor," he said, adding that the site outside the city of Cape Town that houses Koeberg, the country's - and the continent's - only existing nuclear power plant, had been identified as a location.

"From 2013 onwards, over a period of 15 years, we want to build 24 models at 165 MW," he said, adding that the initial baseload customer would be power utility Eskom.

The PMBR is based on old German technology and has been modified by South African scientists. A pilot fuel plan with an initial annual production of 270 000 tennis ball-sized uranium dioxide spheres or pebbles is being developed at Pelindaba, South Africa's nuclear research facility north of Pretoria.

The PBMR facilities - essentially mini-reactors regarded as extremely safe by their developers - will all use Russian uranium and would be located around the country, including Coega, the new harbour development off the coast of Port Elizabeth in the east of the country, according to Erwin.

He told dpa: "We will build a station at Coega. We've kept space in the industrial development zone for the PBMR.

"In our total energy programme we kept 4 000 megawatt free (for the PBMR). There are 24 models that we would be prepared to purchase. If it is very successful we might purchase more in future."

South Africa is competing with China in the development of the PBMR and hopes to be the first in commercialising it worldwide.

He said: Erwin believes a reactor of this nature is particularly beneficial for Africa. "I have no doubt that it will be an important technology for Africa, even for India, China and Brazil.

"We are probably ahead of China at this point. Their design is slightly different."

Apart from the PBMR South Africa is looking to purchase a more conventional nuclear power, similar to the 1 800 megawatt capacity Koeberg that was built by the French in the 1970s as a pressurised water reactor.

"We'll make a decision early next year for a more conventional third-generation plant. There are three companies that put in bids: Areva, Westinghouse and Candu.

South Africa is the world's fourth-largest uranium producer. The country stopped enriching uranium in 1997 following the dismantling of its apartheid-era nuclear weapons programme.

"We stopped it in 1997. It was very, very expensive for the small amounts we needed in Koeberg," the minister said.

"We are re-evaluating our nuclear programme. We are making further announcements next year. We have the uranium, and we have the technology. But we would not replicate the old technology. We have to give it a second thought," he said.

South Africa, which has been party to the Nuclear Non- Proliferation Treaty since 1991, this week signed a five-year international agreement on the peaceful use of nuclear technology.

A statement by the department of science and technology to mark the signing said it was "resolute that nuclear energy should be applied for peaceful uses to benefit South Africa's health, agriculture, water and other resources and sectors."

Little resistance to nuclear plans for Cape Town

2006-12-23T12:37:00.000-08:00

Despite recent controversies over the Koeberg nuclear power plant near Cape Town, locals in the coastal city have shown little resistance to the government's plan to build another nuclear reactor on their doorstep.

Last year the area was hit by several successive power failures. Indications were that a loose bolt that damaged a non-nuclear gas turbine at Koeberg was one of the causes. Maintenance has also been a problem at the plant.

The National Nuclear Regulator (NNR) has since clashed with power parastatal Eskom, the owner of Koeberg, about human error and negligence at the plant.

Complicating matters further is the choice of Koeberg as the preferred site for the construction of a pebble-bed modular demonstration reactor. This process has also been contentious. (The fuel of the pebble-bed reactor consists of small particles of uranium, each coated with four layers of hard ceramic material, which are embedded in graphite to form a pebble about the size of a billiard ball.)

In 2003, the environmental watchdog organisation Earthlife Africa took the Department of Environmental Affairs and Tourism to court after it had given the green light for the construction of the pebble-bed reactor without proper public consultation.

The environmental impact assessment ( EIA), which forms the basis of the authorisation, was set aside by the Cape High Court because it was "procedurally unfair".

This led to a new EIA process in August 2005. Although Pebble Bed Modular Reactor (PBMR), the company that will construct the reactor, is keen to start building as soon as possible, it first requires a licence from the NNR. It also needs a positive decision from the Department of Environmental Affairs and Tourism, based on the EIA.

Both the NNR's investigation and the EIA process require extensive stakeholder involvement. In addition to public meetings in accordance with the EIA, Eskom and Earthlife Africa held separate information meetings in the communities around the plant.

Public interest
However, Barbara Rass, a member of the community of Atlantis who has attended these meetings, says she is getting more and more confused. Atlantis is a poor community 35km from Cape Town.

"Eskom and Earthlife Africa seem to have their own agendas. I'm getting so many mixed messages. I don't know what to think any more."

She is also concerned about the low level of public interest in the issue in Atlantis. The general lack of knowledge on nuclear and safety issues in her community is preventing people from participating in the public debate.

"People do not pitch up at meetings. Even when the local radio station invites people to call in to express their opinion on the matter, there is little response. People do not care because they do not know," says Rass. "If you do not know what it is about, you can neither criticise nor say it is OK."

Proponents of the pebble-bed reactor argue that such reactors are more cost-efficient, quicker to build and safer than conventional nuclear reactors. They consider pebble-bed reactors to be "inherently safe" because, in case of an accident, they shut down automatically.

However, according to Maya Aberman from the Cape Town branch of Earthlife Africa, there is no such thing as "inherent safety".

"Dr Edward Teller, the father of the H-bomb [hydrogen bomb], said that sooner or later a fool will prove greater than even a foolproof system. People make mistakes and, as a result, accidents happen."

She points out that "many nuclear accidents have happened as a result of human error". She also contends that pebble-bed nuclear technology is largely untested. "To test it 35km north of Cape Town's 3,5-million population is simply too big a risk."

Tested technology
But Tom Ferreira, spokesperson for PBMR, argues that the technology has been tested. "The pebble-bed modular reactor concept is based on experience in the United States and Europe -- specifically Germany, where reactors of this type were successfully operated between the late 1960s and 1980s."

The German reactor, which operated from 1966 to 1988, was decommissioned due to political considerations and because it had fulfilled all planned research experiments. Klaus Töpfer, a former nuclear power and environment minister who was instrumental in shutting down the German pebble-bed reactor programme in the late 1980s, has said he felt he made a mistake in halting the programme.

In another bid to increase the flow of information about the project, Earthlife Africa sued Eskom last year to gain access to minutes of its board meetings.

The estimated costs of the demonstration plant increased fivefold from about R2-billion in 1999 to R9,9-billion in 2004. Currently, the costs are estimated to be in the region of R14-billion, says Aberman.

As Eskom is a public entity using taxpayers' money for the reactor, Earthlife Africa argued that the public had a right to know whether the project was safe and cost-effective. However, the court allowed Eskom to keep the information confidential to protect its business interests.

It is estimated that South Africa needs more than 47 000 megawatts of additional power generation capacity in the next 20 years. Apart from building between 20 and 30 pebble-bed reactors for power generation within South Africa, PBMR also aims to export the reactors.

Pebble-bed reactors have a generation capacity of 165 megawatts each, which is small compared with the existing Koeberg units' capacity of 900 megawatts each. According to Ferreira, the size of pebble-bed reactors enables countries to build capacity in line with demand. It also allows for the reactors to be built closer to points of demand.

At a conference in October this year, Public Enterprises Minister Alec Erwin said the ability to build pebble-bed reactors where they are needed would save developing countries from the need to build costly large power grid systems.

PBMR aims to start construction of the demonstration plant in 2007 and to complete it in 2010, thus allowing the first commercial pebble-bed reactors to be available from 2013.

South Africa to use old Russian nuclear warheads to fuel reactors

2006-12-23T12:36:00.000-08:00

South Africa will use uranium downgraded from old Russian nuclear warheads to fuel its planned Pebble Bed Modular Reactors (PBMR), according to public enterprises minister Alec Erwin.

'On the PBMR, that uranium we will bring in from Russia, which is down blended weapon graded uranium,' Erwin told Deutsche Presse- Agentur dpa.

'The target is for 2012 to build the first reactor,' he said, adding that the site outside the city of Cape Town that houses Koeberg, the country's - and the continent's - only existing nuclear power plant, had been identified as a location.

'From 2013 onwards, over a period of 15 years, we want to build 24 models at 165 MW,' he said, adding that he initial baseload customer would be power utility Eskom.

The PMBR is based on old German technology and has been modified by South African scientists. A pilot fuel plan with an initial annual production of 270,000 tennis ball-sized uranium dioxide spheres or pebbles is being developed at Pelindaba, South Africa's nuclear research facility north of Pretoria.

The PBMR facilities - essentially mini-reactors regarded as extremely safe by their developers - will all use Russian uranium and would be located around the country, including Coega, the new harbour development off the coast of Port Elizabeth in the east of the country, according to Erwin.

'We will build a station at Coega. We've kept space in the industrical development zone for the PBMR,' he told dpa.

'In our total energy programme we kept 4,000 megawatt free (for the PBMR). There are 24 models that we would be prepared to purchase. If it is very successful we might purchase more in future,' Erwin said.

South Africa is competing with China in the development of the PBMR and hopes to be the first in commercialising it worldwide.

Erwin believes a reactor of this nature is particularly beneficial for Africa. 'I have no doubt that it will be an important technology for Africa, even for India, China and Brazil,' he told dpa.

'We are probably ahead of China at this point in time. Their design is slightly different,' he added.

Apart from the PBMR South Africa is looking to purchase a more conventional nuclear power, similar to the 1,800 megawatt capacity Koeberg that was built by the French in the 1970s as a pressurised water reactor.

'We'll make a decision early next year for a more conventional third-generation plant. There are three companies that put in bids: Areva, Westinghouse and Candu.

South Africa is the world's fourth-largest uranium producer. The country stopped enriching uranium in 1997 following the dismantling of its apartheid-era nuclear weapons programme.

'We stopped it in 1997. It was very, very expensive for the small amounts we needed in Koeberg,' the minister said.

'We are re-evaluating our nuclear programme. We are making further announcements next year. We have the uranium, and we have the technology. But we would not replicate the old technology. We have to give it a second thought,' he said.

South Africa, which has been party to the Nuclear Non- Proliferation Treaty since 1991, this week signed a five-year international agreement on the peaceful use of nuclear technology.

A statement by the department of science and technology to mark the signing said it was 'resolute that nuclear energy should be applied for peaceful uses to benefit South Africa's health, agriculture, water and other resources and sectors.'

SACP outraged by planned SAA retrenchments

2006-12-23T12:35:00.000-08:00

The South African Communist Party (SACP) says it is outraged by media reports that South African Airways (SAA), the state airline, is planning to retrench close to 1 000 workers by December 2007.

In a statement on Monday, the SACP -- which is in alliance with the ruling African National Congress -- said it had "a number of concerns about these planned retrenchments".

Spokesperson Malesela Maleka said: "First this ran directly counter to the government's commitment to halve unemployment by 2014.

"Second, we would have expected that all state-owned enterprises would do all to contribute to this achievement. Third, we are concerned about the practice of first announcing plans to retrench workers and only after that seeking to engage unions. This is a bad labour-relations practice and should be strongly condemned.

"It also cannot be that senior management continue to be rewarded millions of rands in bonuses and perks, including travel packages, whilst workers are expected to sacrifice their jobs and livelihoods."

"For a parastatal, the first [thing] that should be explored is how to cut back on these luxurious remuneration packages and perks, even before considering retrenching. This demonstrates the fact that state-owned enterprises are practically no different to private capitalist entities. Of even more serious concern is that workers, especially black workers, are still treated as dispensable entities with no right to quality jobs."

The SACP called on Public Enterprises Minister Alec Erwin -- a member of the party -- "to urgently intervene in this matter and ensure that we save workers' jobs, if this is to be the age of hope not only for the elite but for the workers and the poor as well".

"We will engage the South African Transport and Allied Workers' Union [Satawu] and various other stakeholders, and the SACP pledges its full support to whatever action that Satawu and the Congress of SA Trade Unions might take to fight this issue," said Maleka.

State fibre v State wireless

2006-12-23T12:32:00.000-08:00

GOVERNMENT'S Department of Public Enterprises doesn't believe that its new State-owned telecoms player - InfraCo - will be in conflict with the goals and intentions of fellow department Communications in the latter's plans to use Sentech as South Africa's broadband utility.

Ministerial spokesman Gaynor Kast says the mandates of the two State-owned enterprises (SOEs) were largely "complementary", as InfraCo would comprise a national fibre optic cable network while it was Sentech's intention to provide wireless broadband connectivity in SA's metro areas as well as those areas where it wasn't cost effective to lay fibre.

Finance Minister Trevor Manuel allocated R647m to InfraCo in his October medium-term budget policy statement and there's since been significant speculation concerning what the role and function of the new SOE would be. Kast said the full details with regard to InfracCo's operations would only be released early next year, though it would be operational from January 2007.

Some commentators have questioned whether Government is the most efficient body to provide cheaper broadband for SA rather than leaving it to a more competitive private sector in an increasingly liberalised market.

But Kast says all Government is doing is utilising State-owned assets to force the cost of bandwidth down to a level that would stimulate and sustain economic development. "To date, the private sector has failed to deliver on that objective - hence the intervention by Government." That intervention, she says, wasn't unique to SA, with countries such as India, South Korea and Malaysia going down the same path in the past.

For example, South Korea has long been seen as a good example of the potential to significantly increase broadband penetration and its positive effect on its economy.

Kast says Government didn't consider it a conflict of interest that it owned stakes in major telco operators, including Telkom, Neotel, Sentech and soon InfraCo.

Public Enterprises Minister Alec Erwin said at the time of Manuel's budget allocation to InfraCo that it would speed up the introduction of Neotel's services. It would also enable Government to secure the necessary broadband capacity in the ongoing preparation for bandwidth hungry projects such as the Square Kilometre Array (SKA), the world's most powerful radio telescope (which SA has been short-listed to host), and the development of the SA National Research Network.

Kast says InfraCo would be a utility-type company providing wholesale bandwidth to other operators rather than a fully-fledged telco offering voice and data services to end users. That would initially be on an exclusive basis to second national operator Neotel, as previously negotiated with the SNO.

From the outset InfraCo's only assets would be the fibre optic network backbone built by Transtel and Eskom Enterprises on the back of their existing infrastructure. The backbone was initially built for inclusion into the SNO, once licensed. However, Government decided recently that it would retain that asset and spin it off into a new SOE.

InfraCo wouldn't use Eskom's existing private telecommunications network licence, rather its licence was under consideration, Kast says. If need be it could also apply for spectrum to be able to use wireless technologies as well.

Kast says though this long-distance fibre network would comprise the original asset base of InfraCo, it would make further investments in infrastructure down the line "to complement the laid fibre and to enhance its business".

There's been some speculation that Tata/VSNL will own a stake in InfraCo, but Kast says shareholder matters would be dealt with in the announcement early next year "as they're subject to ongoing consideration".

The announcement would also give clarity on Government's intentions concerning expanding undersea cable capacity, which it's believed InfraCo will invest in. There's been some speculation that InfraCo could compete with SA's west coast SAT-3 cable, in which Telkom owns a big stake, and manages. Kast says the objective of expanding undersea cable capacity would be to provide additional international connectivity to meet SA's future needs (no doubt with projects such as SKA in mind).

Kast says that the R647m allocated by Government to InfraCo would be sufficient to fund the required equity contribution to establish the SOE.

Pebble-bed reactor not feasible

2006-11-10T15:19:00.000-08:00

A damning report doubting the feasibility of the pebble-bed nuclear reactor project was given to the government four years ago — yet the country is pressing ahead with plans to build one.

The government has already invested R2-billion, and the report has been kept under wraps.

The report, commissioned by then Minerals and Energy Affairs Minister Phumzile Mlambo-Ngcuka, was drafted by 15 nuclear and environmental experts and given to the Cabinet in 2002.

Mlambo-Ngcuka is now the deputy president.

One of the authors of the report, British nuclear expert Steve Thomas, describes the entire process as bizarre, saying the researchers were sworn to secrecy and not allowed to discuss their findings publicly or with each other.

An energy-policy researcher for 30 years at the University of Greenwich in London, Thomas said he believed the report needed public scrutiny.

“It has all gone very badly since 2002,” said Thomas. “The government has invested a lot of prestige and backing into this. The more money they invest, the more difficult it is to pull out.

“But now is the time to cut out, R2-billion is a lot of money, but the next phase would cost R15-billion and then a further estimated R30-billion after that for the commercial plants — should the demonstration plant be successful.”

The Pebble Bed Modular Reactor (PBMR) project was conceptualised in 1993 with the intention of building a demonstration model and then 24 commercial reactors if it were successful.

The initial proposed cost was R365-million. That figure has now climbed to R15.9-billion for the demonstration reactor and peripherals.

The Department of Minerals and Energy has admitted the existence of the experts’ report, but argues that it was not conclusive enough to stop the project.

“During the meeting of the panel it was informed that the output power [had been] recently upgraded based on a revised design,” said the chief director of nuclear programmes, Tseliso Maqubela.

“Information on the revised design was not available to the panel for assessment at the time and, as a result, the panel could not [reach a conclusion] on the overall technical and economic feasibility of the PBMR and could therefore also not deliver an official report in this regard. There is therefore not an official report that can be made available to the public.”

Geraldine Bennett, a spokesman for the PBMR company, said it believed the project would solve the country’s energy needs. “It gives us the capacity to go from a Third World to First World country, in that we are leading the way in nuclear technology,” she said.

But among concerns raised by the experts about the feasibility of the reactor were:

The demonstration plant will largely be funded by taxpayers;
Delays suggest that the demonstration unit will only be completed by 2011, and will therefore not meet South Africa’s short-term electricity needs;
The PBMR company’s plan is to build 24 reactors to be sold to Eskom if the first plant is successful, and further reactors for the international market — but, according to Thomas, the world market for nuclear technology has dropped significantly;
Thomas estimated that the costs could rise to R50-billion in the worst case — if the demonstration plant failed and had to be decommissioned; and
South Africa does not have the capacity to deal with a nuclear disaster should an accident occur at the plant.

In June 2004, the Cabinet approved a programme to train nuclear scientists.

And since then, the government has spent more than R2-billion to research and develop the project.

Public Enterprises Minister Alec Erwin and the deputy president have publicly supported the project, the latter saying that President Thabo Mbeki also “took an active interest”.

Dr David Fig, a nuclear expert and the author of Uranium Road: Questioning South Africa’s Nuclear Direction, said the pebble-bed technology was not appropriate for South Africa’s level of development.

Fig said South Africa did not even have the skills to maintain the PBMR. “[The PBMR company] is also saying it is inherently safe, but I’m questioning such a claim. Technology can go wrong, and we don’t have the capability of correcting these problems should they occur.”

Fig said the costs of the pebble bed would also spell higher electricity prices in the future.

“There are just too many resources going into this,” he said. “We cannot distribute it, it is expensive and it is not tested. We don’t have customers for it apart from Eskom. The technology is very high-end — and it does not deliver a lot of energy, only about a 10th of a conventional nuclear reactor.”

Overly protected SAA keeps SA’s tourism industry from taking off

2006-11-09T02:56:00.000-08:00

The launch of a new airline in SA has brought with it another price war. That’s inevitable, and it’s great for consumers — at least in the short term. What’s just as inevitable is that prices will rise again.

No matter how low-cost, it’s not possible for airlines to sustain fares of less than R200 to coastal cities — soon enough, the financial haemorrhaging will reach a point where fares start to go up again.

The million-dollar question is when this point is reached. The reason privately owned low-cost carriers such as kulula.com and 1time are kicking up such a fuss about the launch of a new carrier, and why anyone is taking their concerns seriously, is because it’s government-owned. Mango is owned by South African Airways (SAA) which, in turn, falls under the public enterprises department. The minister, Alec Erwin, argues that their concerns are misguided, saying there’s no problem with government backing the start of a new airline.

Perhaps he’s right, although it’s difficult to find examples anywhere else in the world where a government has recently backed the establishment of a new airline. And perhaps kulula.com and the other low-cost carriers are using the fact that Mango is government-owned to stir controversy and lay the foundations for a complaint with competition authorities.

But their concerns are real, even compelling. Simply put, the other low-cost airlines fear that SAA is using Mango as a ruse to drive them out of business. The theory goes: backed by government’s bottomless coffers, Mango will offer below-cost air fares for months, even years, on end. The other carriers will either go out of business trying to match these fares, or they won’t be able to do so, in the process losing so many customers they’ll be forced out of business. Once it has ousted its competitors, Mango’s fares will rise, it will recoup its losses and become a hugely profitable carrier, or simply fold back into SAA.

Is this scenario possible? Yes. Is it probable? Less so. Firstly, if Mango is truly ring-fenced as SAA claims, and is operating on commercial grounds with commercially raised debt, then it will not have the resources to achieve this. If SAA is planning to pump money into Mango to fund a protracted fare war then it, too, will run into problems. While SAA has a history of aggressive behaviour, having used its financial muscle and market dominance to drive out competitors such as Sun Air and Flight Star, the airline is weaker today than it was then. It doesn’t have the financial resources or market muscle to carry out a lengthy price war and if it attempts to do so, the competition authorities will have a field day.

Further, would Finance Minister Trevor Manuel, or Erwin, sanction hundreds of millions of rands going into SAA in order to kill off a thriving domestic airline industry?

I seriously doubt it, but time will tell. And it’s worth keeping a close eye on how SAA behaves. In the interim, there is a far bigger issue that needs to be tackled, that of government’s longer-term strategy for SAA. This has implications for taxpayers, for the tourism industry, and for the country’s economic growth as a whole.

SA has a robust and competitive domestic airline market because of our open skies policy. This means that anyone with enough money and courage can start an airline, as long as they comply with the safety and other regulations governing the sector. The reason that travellers can, on average, pay less than R1000 for a return trip to Cape Town or Port Elizabeth is because of this competition. A few years ago, when SAA was by far the dominant player in the industry with about 80% of market share, a ticket to Cape Town cost more than R3000. The point is simply that sustainable competition reduces prices, improves service and grows the market.

The same situation does not prevail with long-haul flights. Government’s tightly managed airports slots policy has long protected SAA from competition on lucrative routes. The result has been high prices for travellers and restricted choice. As the owner of a national carrier, that makes sense for government. Why let British Airways or Virgin Atlantic, for example, make pots of money on the lucrative Johannesburg-to-London route when the UK government won’t give SAA choice slots at Heathrow?

But what this policy is actually achieving is to stymie the country’s tourism drive. Granted, there are other factors at play here, notably the difficulties experienced by foreign tourists in getting visas due to the dysfunctional home affairs department, and concerns about the high crime rate. But it seems pointless for tourism authorities to go on a big marketing drive to sell SA to foreign tourists when they struggle to get flights (or visas) into the country.

Government has to let more foreign carriers into SA. It has already moved in this direction with its recently released airlift strategy. But I fear that while SAA remains in state hands, the instinct will be to protect it from wholesale competition. The obvious answer is to list. The CEO has backed such a move. What’s government’s plan?

Big bucks for Erwin’s baby

2006-11-05T10:25:00.000-08:00

Finance Minister Trevor Manuel last week upped the government’s contribution to the pebble bed modular reactor (PBMR) to R9-billion, with a commitment to spend R6-billion over the next three years. The money keeps rolling into what was originally a R2-billion project -- but whether it is a hugely expensive dud or a money-spinner will not be known for at least five years.

Critics say that a possible R40-billion price tag for Eskom’s demonstration plant and the 24 commercial units does not reflect decommissioning costs for those plants when they stop producing electricity.

PBMR enthusiasts say the pay-off will be sizeable if the project succeeds. They hope it will create more than 56 000 jobs and provide exports netting 8% of GDP when South Africa supplies 2% of the world’s electricity.

But critics question whether South African taxpayers should shoulder such a heavy cost of research and development for risk-laden, untried technology.

Despite Eskom’s plans to scale down its investor role, the programme has not been able to expand its private sector investment beyond Westinghouse, which holds a 15% share in PBMR through Toshiba.

PBMR has revealed that by October 2006 Westinghouse had invested a total of R450-million, Eskom had invested R818-million, the Industrial Development Corporation R457-million and the departments of public enterprise and trade and industry R1,76-billion.

Before pulling out in 2002 United States company Exelon had invested R101-million.

Without public financial statements or an annual report it is difficult to judge where the money is going or whether it is being prudently spent. The company does not report because it generates no income, said PBMR spokesperson Geraldine Bennett.

She said money had been spent on a demonstration plant, a pilot fuel plant at Pelindaba and technology development programmes. PBMR has also placed long-lead contracts for sub-systems, increased its staff and supported mathematics and science education.

“If the people will support it and be proud of it and love it, it will be such a unifying process,” she said, comparing the project’s feel-good potential to Nelson Mandela’s release from prison and South Africa’s Rugby World Cup win in 1996.

Such public enthusiasm has yet to emerge. Earthlife Africa, an environmental lobby group opposed to nuclear power, is calling on Public Enterprises Minister Alec Erwin to resign over mismanagement of the project.

Before any construction of the nuclear station can begin PBMR requires a positive record of decision from the environmental affairs and tourism ministry as well as a licence from the national nuclear regulator.

The project received an additional R462-million from this financial year from the department of public enterprises last week, with the explanation that “progress on the project from basic design to requiring long-lead materials and hardware necessitates funds in excess of those committed by existing shareholders”.

The total adjusted appropriation for PBMR in the current financial year is R1,2-billion.

The reactor was established in 1999 to develop an innovative nuclear reactor based on German technology. Pebble bed reactors are supposed to be much safer, more cost-efficient, quicker to build and smaller than the pressurised water reactor currently used in Koeberg.

Projected costs have jumped by more than seven times the initial estimates since 1999, according to a study of PBMR by Steve Thomas of the University of Greenwich. He anticipates that taxpayers will continue to subsidise the project beyond the costs currently provided by the company.

The plant will be complete by 2011 and the first commercial unit will be available from 2013.

Bennett said Eskom had signed a letter of intent to buy the demonstration plant and 24 commercial units subject to certain conditions. “But it’s not a foregone conclusion,” she admitted.

Both the Americans and Chinese are known to be developing modular reactor technology and could be significant competitors.

Eskom needs to develop new power stations to meet an electricity supply gap of between 3 000mW and 4 000mW, said Andrew Kenny of the energy research institute centre at the University of Cape Town. In the absence of steps to increase our energy supply, Kenny said the gap would grow roughly in line with economic growth.

Independent consultant and nuclear physicist Kelvin Kemm described PBMR’s admittedly small R23-million contract with the US energy department as “a huge stamp of approval”. The department contracted PBMR in preference to world nuclear technology leader Ariva to work on hydrogen production.

Kemm said PBMR technology -- at R1,5-billion for a unit that produces 165mW -- is much cheaper to construct than the technology used in Koeberg, which produces about 1 000mW.

Because PBMR does not require water, he said, these relatively small units could be placed close to areas of demand, reducing transmission costs.

Bully for Eskom

2006-11-05T10:21:00.000-08:00

While the British government is making climate-change combat its priority, South African officialdom is squabbling over who should administer a green tax worth up to R600-million a year.

Electricity users pay between R400-million and R600-million annually as a tariff on electricity usage to promote energy saving. A directive from the minister of minerals and energy says the bulk of this money should go to the Central Energy Fund (CEF) where a set of new agencies are charged with moving the economy to a more green footing. But Eskom is refusing to give up the money.

Having Eskom control these funds is like requiring SABMiller to promote alcohol abstinence, CEF head Mputumi Damane told a committee of parliamentarians two weeks ago.

Eskom has in part been using these funds to switch electricity users in Cape townships to gas after the sustained power outages in the Western Cape last December. But later gas shortages saw some township residents requesting to switch back to electricity.

Data supplied by the World Wildlife Fund (WWF) shows that South Africa is a significant contributor to global warming, being a disproportionate emitter of greenhouse gases.

The WWF says South Africa’s carbon dioxide production doubled from 1980 to 2004 and is higher than that of Brazil, which has four times the population. It says South African emissions per capita are half that of the United States and slightly lower than Russia’s, but three times higher than China’s.

Critics have said that part of the problem is that Eskom plays the role of both poacher and gamekeeper. Separate agencies have been set up at the CEF, in cases manned by former Eskom staffers who remain on the Eskom payroll.

These have been mandated to fast-track the development of greener environmental policies. But notwithstanding a ministerial directive from minerals and energy to this effect, funds that could be used by the CEF agencies to promote energy conservation and renewable technologies, remain under Eskom’s control.

At least one minister, public enterprises’s Alec Erwin, appears to support the status quo. Erwin’s spokesperson, Gaynor Kast, said that “Eskom is not meant to pay any money [to the CEF]”.

“Of course they are resisting, but we will take it away from them,” Damane told the parliamentary committee on minerals and energy.

The squabble has come to light as a 600-page report on climate change was tabled in the UK. The Stern report warns that by not taking urgent action to combat climate change, the world faces economic catatrosphe.

South Africa, with its energy intensive (and inefficient) economy, will run out of generation capacity by 2008. About R60-billion will be spent on new generation capacity between now and 2015. But if we succeeded in reducing energy demand by 15%, as targeted by government, it could amount to a R9-billion saving, according to the WWF.

South Africa’s energy efficiency programme, Demand Side Management (DSM), is at present being implemented by Eskom. Electricity users fund the programme through a tariff system. But as Eskom both implements the DSM programme and supplies electricity, there is a clear conflict of interest, as acknowledged by Eskom chief executive Thulani Gcabashe in 2004.

Gcabashe and then-minister of minerals and energy Phumzile Mlambo-Ngcuka agreed two years ago that the DSM funds should be transferred to another entity. A ministerial directive was issued to the CEF, instructing it to set up the National Energy Efficiency Agency. Another was issued to the National Energy Regulator, instructing it to transfer responsibility for DSM to the new agency, including the annual budget allocation for DSM funding. Eskom, which is controlled by the department of public enterprises, received a letter explaining the change in policy.

But Eskom has refused to hand over the funds. CEF head Damane told the parliamentary committee on minerals and energy, during hearings into the CEF’s finances, that Eskom was not complying with the policy. “Eskom gets the levy for Demand Side Management. There is a ministerial directive that they must stop and give it to us. But they don’t. Eskom is big and they don’t listen to anyone … Eskom is bullying all of us.”

“They [Eskom] are losing 40% of the power just transmitting it from Mpumalanga to Cape Town. Can you give it [the energy efficiency mandate] to them? Of course not,” Damane told MPs.

Eskom did not deny the allegations.

“There has been no transfer of the funds from Eskom to the CEF. Currently, we are engaged in a dialogue with CEF with the view to facilitating the transfer of funds in question. We are also wanting to discuss several other issues relevant to the transfer of the energy efficiency programme,” Eskom spokesperson Fani Zulu told the M&G recently. He did not clarify what the other issues were.

Final approach

2006-10-24T02:27:00.000-07:00

Since South African Airways’ (SAA’s) disastrous hedging programme in 2002, the national carrier has had to rely heavily on government guarantees and funding from its former parent company, Transnet, in order to stay afloat.

The hedging programme, implemented by former CEO Andre Viljoen, cost SAA billions of rands, forcing government to issue two guarantees totalling R7bn to the airline’s top lenders after it dipped into technical insolvency twice. Transnet had to step in and provide R6bn to help offset the mounting losses.

The upshot is that taxpayers have, in part at least, been responsible for keeping the national carrier afloat for the past few years. The same could be said of several American airlines since the 2001 terrorist attack, but that hardly makes it a healthy trend.

So SAA’s decision to go to the market to raise cash early next year, and then possibly sell off an equity stake by June, is to be welcomed. CEO Khaya Ngqula says SAA can’t go running to government every time it gets into trouble. He’s quite right — SAA needs to be able to stand on its own two feet, restore commercial viability and fend for itself in an increasingly competitive airline market.

There have been some mixed messages about whether SAA will be listed. It seems that while Ngqula supports a listing by 2010, at this stage there are no plans by government to go that route. The proposal currently with Public Enterprises Minister Alec Erwin is to recapitalise the airline by raising between R3,2bn and R4bn by April. If successful, an equity stake could be sold via a private offering by June, with government keeping a majority stake in the airline.

The rationale is twofold — SAA is carrying a huge debt burden (its debt:equity ratio is 90%) which must be cut; and it is running out of capacity as tourism takes off.

In other words, more aeroplanes are needed to meet rising demand for flights — both locally and internationally.

When Maria Ramos took over at Transnet in 2003, the most immediate challenge was to stabilise SAA financially. Some of the key actions taken were to unwind the hedge book, recapitalise the airline and cut costs. The latter included reducing a huge order placed by Viljoen with European manufacturer Airbus for SAA to buy 41 new planes over 10 years at a cost of between $2bn and $2,5bn. The order was cut by 15, saving SAA $50m, and the airline decided instead to lease several aircraft. However, Ngqula says that with SAA’s capacity stretched to the limit, it now needs more aircraft. Obviously, it needs money to do so.

And then, of course, there’s the planned low-cost airline, flymango.com. Galvanised into action by the realisation that it was losing market share to low-cost carriers, the airline will next month launch its own such carrier. That, too, will cost money to establish with SAA having housed flymango.com in a subsidiary company called Tulca with an initial R100m in capital. Competitors have expressed concerns that flymango.com will have an unfair advantage due to the state’s financial backing, and have also pointed to SAA’s past anti- competitive actions.

They have every reason to be worried. SAA has long used its size and financial muscle to keep domestic competitors in check. The airline had to fork out R100m in the past year for anticompetitive practices, including price fixing. And when it comes to the international market, government’s tightly managed airports slots policy has protected SAA from competition on lucrative routes for decades. The result has been comparatively high prices for travellers and restricted choice. It was only with the advent of low-cost carriers that domestic prices fell. The benefits have been clear — an expanding market, rising tourism and better service.

The solution is to set SAA free to fend for itself. It has already been separated from Transnet, and now falls directly under the public enterprises department. Given its debt and weak balance sheet, the current gradual approach to privatisation is a prudent one. Let’s stabilise SAA financially first. But we wholeheartedly support Ngqula’s goal of listing SAA by 2010. The challenge is to convince Erwin.

Celebrating the delivery of a speech

2006-10-20T13:11:00.000-07:00

Government has again come under fire for extravagant spending on entertainment -- this time Public Enterprises Minister Alec Erwin is in the firing line for a post-budget party costing almost R3800 for each of the 36 guests.

This follows hard on the heels of earlier news that Gauteng finance MEC Paul Mashatile spent about R100000 on a single lunch entertaining officials from his department at one of Johannesburg's top restaurants.

It is something of a tradition that cabinet ministers hold a function after their budgets have been debated in the National Assembly. These range from the modest, in a room in Parliament, to the extravagant, and each year the Democratic Alliance (DA) asks each minister how much they spent on their parties.

DA MP Motlatjo Thetjeng released findings for the 26 departments that responded to the DA questions. He said ministers had spent about the same as last year but some had got a lot grander and others had scaled down.

The DA then took a closer look at those ministries that had paid more for their parties this year than last. Top of the list was former agriculture minister Thoko Didiza (now public works minister), whose spending increased a whopping 5069% from a very modest R1500 in 2005 to R77527 this year. She entertained 200 people at R388 a head.

The cost of Erwin's party went up from R26446 in 2005 to R136524 a year later, an increase of 416%. But the problem is that the public enterprises party catered for only 36 people, meaning that it cost R3792 a head.

Thetjeng said those departments that had spent a lot on their parties "need to explain why it is that, with service delivery failing and a massive number of social and economic problems facing this country, they saw fit to spend exorbitant amounts on a party to celebrate nothing more than the delivery of a speech".

"Most departments already spend a substantial amount on their end-of-year functions, which suggests that the budget- vote parties are an excess rather than a necessity," he said.

The six most expensive parties were hosted by minerals and energy affairs -- R281517; public service and administration -- R254478; education -- R190163; trade and industry -- R162421; defence -- R151874; and public enterprises -- R136524.

Loss of 1.377 billion rand ahead of expectations

2006-10-20T05:51:00.000-07:00

Defence parastatal Denel has reported a net loss of 1.377 billion rand for the year ended March 2006. This was compared to a net loss of 1.561 billion rand in 2005. Gross revenues for the year declined from 3.611 billion rand to 2.731 billion rand.

According to Denel CEO Shaun Liebenberg, the major contributors to the loss were a failure to achieve the sales target, an increase in provision for contract losses, provision for restructuring, high interest costs and low production at certain plants resulting in an under recovery of labour.

However, he said Denel had regained solvency with capital and reserves, depleted in previous years, being restored to 600 million rand during the 2005/2006 financial year.

This was due in part to the government's first phase recapitalisation of 2 billion rand in March 2006. Denel issued 447,394,324 ordinary Class "A" shares (R1.00 each) at a premium of 1.553 billion rand.

The impact of IFRS implementation, more specifically the revaluation and review of the useful lives of property, plant and equipment had also contributed.

Notable was the progress in unbundling Denel into eight to ten independent legal entities. This process had paved the way for the introduction of new executive management and the appointment of skilled financial staff in all business units.

These equity partnerships will lead to the introduction of much needed management capability, world-class processes and technology, access to markets and a contribution to R&D. "Importantly these partnerships are linked to strong IP protection to ensure the South African Government remains in control of its intellectual assets," Liebenberg said.

Minister of Public Enterprises Alec Erwin, commented: "I'm pleased to acknowledge a glimmer of an upturn in Denel which, frankly, is ahead of my expectations. Especially pleasing is the very important relationship with the Department of Defence and the impact this is having on South Africa's defence related industry in general."

Eskom fleeced of R129m

2006-10-17T04:16:00.000-07:00

ESKOM has suffered a financial loss of about R129 million under what a damning KPMG report says are “questionable circumstances” despite chief executive Thulani Gcabashe having been informed in 2004 – and allegedly doing nothing about it.

Police spokesperson Superintendent Lungelo Dlamini confirmed that they were investigating a multimillion-rand case of fraud involving several managers at Eskom.

Gcabashe and his top management team have been sitting on a report, dated May 18, 2006, that chronicles a collapse of fiscal control measures, including theft, kickbacks, fraud and apparent corruption in the communications division.

A forensic report done by KPMG, an internal audit report prepared by group audit manager Christopher Palm and a set of internal secret reports, including an anonymous letter, provide details on how Eskom was fleeced of millions in what appears to have been a “free for all” scam with apparent disregard for fiscal control measures.

The forensic report reveals that the communications section, which was led by Zintle Filtane, made multimillion-rand payments in some cases without having received quotations or contracts.

Where draft contracts existed, some of them had not been signed. Payments were also made without tender processes being followed and in some cases double payments or over-payments were made.

The report says some of the payments were done in cases where there was no proof of “deliverables” or where “deliverables” were questionable.

On the publication of an Eskom annual report, the forensic investigators say Filtane and her team spent R35.2 million in just two years in what was supposed to be a three-year R18 million contract (R6 million a year), representing an over-expenditure of R23 million. The annual report was being printed by Business in Africa Publishing (BIAP), whose directors include Oluwatoyin Taiwo Adedoyin, Andrew Fasedemi, Eric Mafuna and BIAP chief executive Everest Ekong.

Mafuna claims he was fraudulently made a director even though he signed no form or filled in an application to be a director.

The amounts of “questionable” payments that went to companies -- whose directors include Fasedemi, Ekong and Mafuna -- comes to over R85 million.

But the biggest beneficiary of the alleged collapse of fiscal control at Eskom remained BIAP.

Mafuna and Fasedemi are listed as co-directors of Africa Now, which allegedly conducted high-level coaching and consulting for R8 million.

The forensic report says the “deliverables” for these contracts are “questionable”. Mafuna said Africa Now neither had a coaching contract with Eskom nor received a cent from it. “Where there is Africa Now in the forensic report it should read Leadership Now, led by Mandla Nkosi.”

But Nkosi rejected this, saying by the time he joined Africa Now they already had a contract with Eskom. He confirmed that he used to have a romantic relationship with Filtane while in exile before Filtane started controlling communications at Eskom.

Filtane, who managed the section, reported to then corporate division managing director Joe Matsau. But Matsau was also a beneficiary of Filtane's questionable judgments in that he accepted alcoholic beverages as gifts from her bought with Eskom money at Makro Woodmead.

These included 12-year-old Royal Salute, 12-year-old Chivas Regal and 8-year-old Chivas Regal Rare, costing about R1 500, which was billed as a "marketing" cost. Filtane refunded Eskom the amount, allegedly at the insistence of Matsau, once the expenditure became public.

In the case of IXIA Trading 359, the report alleges that double payments were made and kickbacks were given to an Eskom official. An affidavit had been obtained in this regard for criminal action.

Superintendent Lungelo Dlamini said: "I would like to confirm that the SAPS commercial crime unit is investigating a case of fraud regarding several million rands stolen at Eskom. However, the investigation is still at its initial stage as the case was registered last month".

Dlamini said the investigating officer had already requested additional information to help him with the investigation.

Filtane resigned from Eskom when she was slapped with a letter of suspension.

An anonymous letter clearly written by someone versed with developments at the section reads: "The staff members are obliged to recommend payment of these invoices - they have no idea what they are approving and co-authorising. Mrs Filtane then only has to approve or authorise the cheque requisitions.

"If anyone had to ask them what professional services their department is (sic) receiving, they would not be able to answer. They have merely been instructed to ensure that the payment is effected."

Gcabashe's management is called into question with regard to payments for the Nepad annual report.

"Filtane brought him under the impression that BIAP is the preferred provider of printing services (when this was not so). Copy of draft contract obtained, no signed version, no tender process followed," the report reads.

The total amount paid was R1.5 million out of Gcabashe's cost centre.

Gcabashe was made aware of the rot as early as 2003 and, according to two reliable sources, he dragged his feet until the rot was firmly entrenched.

"Thulani has failed Eskom, he has allowed the rot to take root by not acting firmly and decisively from the outset. The fact that he was told long ago and did nothing, and the fact that the rot extends to his own cost centre, means he is culpable. Where there is a breakdown of a professional relationship between Filtane and Matsau, the company relies on Gcabashe to manage and lead - my view is that he let us down," says one of the sources.

Eskom spokesperson Fani Zulu, speaking also for Gcabashe, refused to answer a list of 21 questions sent to him.

"We are not in a position to comment on substantive issues around the investigation".

"We can however confirm that Eskom has taken the necessary corrective steps including the appropriate sanction where necessary."

Responding on behalf of Matsau, his attorneys Knowles Husain Lindsay INC said: "Our client received a Christmas gift pack of whisky from the management and staff of the communications department in 2004".

"It was later brought to our client's attention that the gift had been charged via petty cash to the cost centre of the communications department".

"Our client made it clear to them (Filtane and team) that their behaviour was unacceptable and that the gift was sullied. The gift remains untouched".

Advocate Jean Berdou, responding on behalf of Fasedemi, said Fasedemi had resigned as director of BIAP, contradicting an earlier response from Fasedemi that he had put his "decision to resign on hold".

Berdou said: "Your questions also are based on a flawed assumption that Fasedemi or BIA Publications were aware or were party to internal financial allocations at Eskom, irrespective if such monies were paid or not. Mr Fasedemi denies any wrong doing."

We have a plan A and a plan B

2006-10-07T04:31:00.000-07:00

The government was examining the feasibility of building a new conventional nuclear plant in South Africa but this is only plan B, public enterprises minister Alec Erwin said. Erwin confirmed this at an international High Technology Reactor conference and added that that the government had a plan A and a plan B to meet the country's energy needs. Plan A involves the R11.5 billion pebble bed modular reactor technology project.

Erwin said the time line for a pebble bed power plant entering the electricity grid had always been for about 2013. To get a reactor plan up and running, the deadline might have to be put back slightly, largely because of tight equipment supply conditions.

The Pebble Bed Modular Reactor Company (PBMR) has been courting French energy giant Areva for many months to take a stake in the reactor since the withdrawal of US energy group Exelon from the project in 2002.

"We started making those plans last year so that we can keep the window open for the pebble bed reactor and also have a plan B in the event that we have to replace the reactor. We have got a high degree of certainty in our energy system. We know what target we want to reach in terms of the available new capacity and can place a range of projects to meet that," he said.

Erwin reiterated that the government was contributing hundreds of millions of rands to underpin the reactor project. He said the government remained "absolutely convinced" that nuclear technology, both the current generation technology and future generation such as pebble bed technology, had to play a very important role in the future energy mix because of its positive environmental aspects in relation to emissions.

Erwin confirmed that discussions were still taking place about another international strategic partner for PBMR and he wanted these discussions sorted out by the end of next year.

We are not concerned at all

2006-10-07T04:01:00.000-07:00

"Pure speculation" was the view of Public Enterprises Minister Alec Erwin, amid reports that the military Airbus that South Africa hopes will boost its aerospace industry, might also face problems.

While the Airbus commercial superjumbo programme was facing two years of delay, its A400M military aircraft could also face rising costs and possible delays.

Airbus CE Christian Streiff said that the A400M timetable "is exactly on the edge".

"It is a tense situation with a number of suppliers... We are exactly on track, but without any reserves (of time)," he reportedly said.

In December 2004 the government committed South Africa to buying as many as 14 of the aircraft in exchange for investment, technological knowledge and jobs. The first eight aircraft at a cost of R6,5-billion were expected to be delivered in 2010.

Reacting to the report, Erwin's spokesperson Gaynor Kast said on Thursday: "This is merely speculation and we are not concerned at all."

The A400M is heralded as a key pillar in the government's strategy to boost the aerospace sector.

Erwin announced in April last year that South Africa would earn about R3,3-billion from manufacturing components for the A400M.

We love nuclear power

2006-10-03T02:37:00.000-07:00

Alec Erwin, South Africa's Minister of Public Enterprises, said the country would look to nuclear-generated power for the country's future power needs.

He said as the country sought to reduce dependance on coal-fuelled power stations, a viable base-load power source would be needed.

"Nuclear is such a viable source," said Erwin at a high temperature reactor conference in Sandton on Monday.

He added that the government was currently planning the construction of between 20 and 30 Pebble Bed Modular Reactors (PBMR), that would generate an estimated 5 000 megawatts.

The first reactor would be commissioned in 2013/2014, said Erwin.

He said he valued the government's future investment in the development of the PBMR at hundreds of millions of dollars. He said other sources of energy would be studied by the government, but the current preference was one of nuclear power.

2006-10-03T02:27:00.000-07:00

A company that has been awarded a two-year contract worth R73 million by Transnet to provide security services at the Durban port owes the compensation commissioner R1.5 million.

This flies in the face of Transnet's tender requirements, which say that a tendering company has to be up to date with its obligations under the Compensation for Occupational Injuries and Diseases Act.

Transnet said one of the reasons it awarded the contract to Isidingo Security Services of Durban, was on the strength of a letter from the compensation commissioner, vouching for Isidingo's good standing.

Compensation commission records in possession of Business Report show that Isidingo has been lagging in its financial obligations between June 10 2000 and August 31 2006, and the R1.5 million is inclusive of interest for late payments and penalties.

This discovery will further fuel controversy over Transnet's awarding of two lucrative security services contracts for the Durban and Richards Bay ports. Already these two contracts have been challenged in court and further litigation is on the cards. It is a also a criminal offence for designated employers not to pay into the fund.

Thami Mchunu, a spokesperson for the commissioner, said he was not allowed to discuss the status of Isidingo's payments. "The letter of good standing has been abused in the past. People have been dismissed," he said.

The centralisation of the port tender processes by Transnet, in taking that role away from its five divisions, has given rise to charges of irregularities relating to the two contracts.

There is also a case pending in Cape Town relating to the Transnet security services contracts there.

Isaac Julies of the Democratic Alliance asked public enterprises minister Alec Erwin the reasons for the centralisation of the Transnet tender system.

In his reply Erwin said: "Transnet decided to centralise tender processes in line with its new strategic supply management policy which is designed to optimise spending on major items, including security services, and to avoid duplication of resources by divisions.

He said this had been done to maximise the benefits for the company and had the support of all the operating divisions.

Isidingo's contract and that of Landforce Security Services have become controversial because of charges that they were awarded by Transnet irregularly.

Landforce's two-year contract is worth R34 million.

Transnet has denied the charges, but the Security Industry Association of SA (Siasa) and five other security companies made a failed bid at the Durban high court for an interdict to stop Transnet from implementing the contracts.

The five companies, who are black empowered, were previously contracted to provide security services at the Durban and Richards Bay ports.

In March 2003, Transnet invited tenders for security services for the SA Port Operations (Sapo).

The National Ports Authority and Sapo effectively operate all significant aspects of local ports.

Members of Siasa, whose membership is predominantly black, pointed out to Transnet certain irregularities in the tender, which led to its abandonment.

On March 13, Transnet issued a new tender. The closing date for submissions was April 13.

Five black Siasa members who were at the time rendering security services at the Durban and Richards Bay ports claim they were given interim contracts by the relevant divisions on a month-to-month basis, pending the award of the final tenders. They now allege the contracts were arbitrarily terminated by Transnet between July 31 and August 7 without adequate notice.

They also claim that although they had tendered for the final contract, Transnet did not follow its own procedures by conducting site inspections for their tenders.

This, according to the Siasa members, meant the two contracts awarded were irregular.

Roads and rail not up to scratch

2006-09-29T02:57:00.000-07:00

Limited rail investment over the past 10 years had contributed to a deterioration in safety and operational efficiency, Public Enterprises Minister Alec Erwin has acknowledged.

Erwin said the department was together with Transnet, the umbrella transport parastatal, and the Transport department "exploring a campaign" to increase rail freight.

At present, Spoornet transported about 34% of total mining production. Coal and iron ore mining exports constituted the bulk of total mining production conveyed by the rail parastatal. In addition Spoornet moved about 10.5% of agricultural products - large grain products but it also included forestry products.

Asked whether it took one week to transport freight by rail between Limpopo and Cape Town, he said: "A rail trip plan indicates that it would take 3.5 to 4.5 days to convey a single wagon consignment between Table Bay and Musina."

Owing to under-investment and huge increases in traffic volumes since the early 1980s, neither road nor rail had kept pace with developments.

We are insured againt our incompetence

2006-09-28T03:43:00.000-07:00

One seemingly small mistake by an incompetent repairmen has ended costing South Africa big time.

The cost of repairs from the loose bolt that crippled one of Koeberg's generators earlier this year came to R150 million, including the cost of the replacement rotor.

Eskom was unable to put a price on losses to the Western Cape from the power cuts.

Public Enterprises Minister Alec Erwin said insurance covered the R150m.

Democracy in action

2006-09-22T01:34:00.000-07:00

How South African politics work: the ANC regime uses its majority in parliament when dealing with crticism.

Did Minister of Public Enterprises Alec Erwin lie when he denied saying that the cause of electricity blackouts at Koeberg Nuclear Power station had been sabotaged?

And did former minister of minerals and energy Lindiwe Hendricks mislead the public when she inferred, on the eve of municipal elections, that Koeberg's woes could be traced to unnamed forces resisting government's transformation agenda?

Parliament will not be seeking answers to these questions after an ANC-led majority on Tuesday quashed two motions brought by the Democratic Alliance seeking further investigation.

Rather than grant DA's Douglas Gibson request for an ad hoc committee to investigate whether or not Erwin misled parliament, MPs instead voted in favour of an amendment, brought by ANC chief whip Mbulelo Goniwe, that the matter "not be pursued any further" The separate motion brought by DA MP Hendrick Schmidt questioning the conduct of Hendricks was also robustly voted down.

That is my final offer

2006-09-12T09:25:00.000-07:00

Even after a landmark court decision, the South African government and a bunch of free-loaders are still sorting who owes what to whom.

Government and the Richters-veld community met in Cape Town early last week to progress a complex set of negotiations designed at facilitating the entry of the impoverished community into the ownership structures of the State-owned Alexkor diamond mine.

Public Enterprises Minister Alec Erwin facilitated the negotiations and while no deal was signed, ministerial spokesperson Gaynor Kast said progress had been made. She said a follow-up meeting would be held in mid-September.

The Richtersveld community won a landmark restitution judgement in 2003, which went all the way to the Constitutional Court. The ruling gave the Richtersveld community the right to claim the land and the minerals. But with the rights having been established, the Richtersveld community, Alexkor and the government have since been pursuing an appropriate remedy.

Ahead of the meeting, Erwin told Mining Weekly that an offer of equity and a potential royalty-equi- valent was made to the community, but that the proposal was rejected.

The deal would allow the community a 49% interest in the mine and an option to either increase that position or sell it at a later date. Government would take on the full burden of recapitalising the operation, which was running low on known reserves. In addition, the community would receive 100% of the nondiamond mining activities owned by Alexkor, such as agriculture and mariculture.

Erwin indicated that government was keen to move ahead with a transaction, which, he said, had the potential to improve the lives of the Richtersveld community, which had put up a “brave” fight for the land.

However, while the State would take on the full capital commitment and give up partial equity, majority ownership was a prerequisite for the transaction to proceed. This appeared to be a sticking point with the community and its lawyers.

“This is a community that really deserves a lot of support. It has fought hard, has been resilient in its struggle and we must treat them honourably,” Erwin said, but he also indicated that it was making a mistake in not taking government’s offer. “At the end of the day, we are not going to allow the lawyers to dictate the terms here. This is an amazingly good offer,” Erwin concluded.

Neotel does not want spend any more money and will employ very few

2006-09-12T09:15:00.000-07:00

After all the hooplah about Neotel, they will employ only 250 peoplle. public enterprises minister Alec Erwin is keen to flog them a little-known state-owned business, but are not buying.

VSNL, a Tata group company, will not take a 26% stake in InfraCo, which houses Eskom’s telecommunications assets. Government, reports suggested, would retain a 74% shareholding.

Eskom’s telecom assets, which together make up a national backbone communications network, are essential to Neotel as it begins offering services, first to wholesale customers and later to business and residential consumers. Eskom holds 15% of Neotel while Tata and VSNL hold a controlling 26% stake.

A Neotel spokesman says rather than purchase a stake in InfraCo, the company will lease access to the infrastructure. The company plays down criticism of the decision by public enterprises minister Alec Erwin to hold on to Eskom’s assets rather than sell them to Neotel.

Neotel MD Ajay Pandey says government promised Tata it would have access to Eskom’s network. It did not give an undertaking to sell this network to the company, he says. Pandey adds that there are “no unfavourable terms” in its agreement with InfraCo.

Erwin is keeping his plans for Eskom’s telecom assets close to his chest. Until last week, the department was reluctant to admit that InfraCo even existed.

Erwin’s spokesman, Gaynor Kast, says cryptically: “We are consulting and will be deciding on the full services network assets [of Eskom] in the near future.” Kast declines to give reasons why government decided to hold on to the assets and won’t say what plans it has to sell equity in InfraCo to outside parties.

The public enterprises department may be tight-lipped about InfraCo but deputy communications minister Roy Padayachie, speaking at an Internet Service Providers’ Association (Ispa) conference earlier this week, said Telkom and Eskom’s telecom assets would be developed into what he describes as a “national broadband spine”.

Neotel employs just 40 people now but plans to increase this to about 250 by the middle of next year when it starts offering retail services. Neotel expects to get off to a relatively slow start. This is understandable, given its reliance on rival Telkom, which is providing it with access to the undersea cable it needs to provide international wholesale services.

I never said that

2006-09-08T07:35:00.000-07:00

After saying that Koeberg was sabotaged, the minister now has to eat his words. It turns out it was just incompetence that caused all of the power cuts. What a relief!

There is no evidence of any organised group of any sort being the agent of an act of sabotage at Koeberg -- which led to the shutdown of the nuclear plant earlier this year -- South Africa's Minister of Public Enterprises Alec Erwin told Parliament on Thursday.

Erwin was speaking after months of controversy over remarks he made the day before the local government elections on March 1 that a bolt -- found in the rotor and stator mechanisms at Koeberg -- "did not get there by accident". His statement was interpreted as indicating that there had been sabotage.

Referring to the incident on December 25 last year, Erwin said in the National Assembly on Thursday: "The word sabotage generally conveys such organised action by a group and our initial concern was to eliminate such a serious possibility.

"It was also why I did not use the word sabotage as we had to verify the existence or otherwise of a group before any such word was appropriate. The non-existence of any such group has now been conclusively established."

After the controversy over his initial remarks, he referred instead to "human instrumentality".

Clarifying his statements, Erwin said, in a prepared statement: "This question has caused massive public interest. Of as much interest has been whether I said that this was an act of sabotage. I did not say this and all attempts I made to our erudite media to say what I did say merely got me into deeper linguistic difficulties."

The minister said the actual events "are clear and now very well understood. When the generator was opened up a bolt was found in it."

"This bolt should not have been there -- it was of a type that was used outside and not inside the generator and the clean-conditions controls had been implemented but had clearly not prevented it being within the generator. This was an obvious cause of concern."

Indicating that negligence by Eskom staff, rather than sabotage was involved, the minister noted that he would "not comment on individual persons who may have been the subject of any investigation".

Full steam ahead on the gravy train

2006-09-06T02:42:00.000-07:00

Gravy train orgies

Executives are milking hundreds of millions of rands a year from underperforming State-owned enterprises.

There was something of an uproar this week on news that Mandla Gantsho, erstwhile CEO of the Development Bank of Southern Africa (DBSA) was paid R6,2m for the financial year to March 31 2006. This was certainly a lot more than the R2,5m he scored in the previous year.

But this is only the tip of an iceberg sticking its sharp little head above the monster gravy trough that has developed around executive pay for individuals at State-owned enterprises.

Executives at underperforming State-owned enterprises are indulging in an orgy of gravy trains. At Transnet, for the year to March 31 2006, executives scored remuneration of R72m. Maria Ramos, the CEO, was paid R4m, while Khaya Ngqula, CEO of South African Airways, a subsidiary of Transnet, was paid R6,9m.

At Eskom, executives were paid a relatively modest R30m for the year to March 31 2006, after scoring a massive R78m the previous year. The latter figure included a weird thing called “payments on expiry of five-year contracts”, as if people on such bloated packages wouldn’t come back for more. Eskom CEO Thulani Gcabashe was paid R5,2m in the latest financial year, following the mind-boggling R13,1m he took home in the previous year.

Then there is the astonishing case of the Industrial Development Corporation (IDC), where executives walked off with R47m in the year to March 31 2006, compared with R31m in the previous year (which covered a nine-month period). All told the executives and non-executive directors of DBSA, Transnet, Eskom and the IDC took home R172m in the 2006 financial year.

In the case of DBSA, its latest financial report shows that it again massively underperformed in the disbursement of funds for development projects, at less than 40% of R8,1bn approved. DBSA simply cannot be regarded as performing on target if it has so little control over the projects in which it has invested. As critics have noted, capacity problems at municipalities were around long before Gantsho commenced his tenure at DBSA. Few, if any, improvements have been made, yet Gantsho was paid a “performance incentive” of R3,9m for 2006, enough to make a poor person choke for a century.

At Eskom, Gcabashe was paid a bonus approaching R1m for a period that included the inexcusable problems at Koeberg, a power station powered by a nuclear reactor. The problems triggered incessant power outages in the Western Cape, said to have cost the private sector billions of rand. Gcabashe, who holds a BA (Botswana), told people to use less electricity, the very thing over which Eskom holds a monopoly and which is sold to settle Gcabashe’s overstuffed pay package.

As for Koeberg, the National Energy Regulator of South Africa found that Eskom had been negligent; had failed in its maintenance obligations, and had breached its licence conditions. Gcabashe and his fellow executives at Eskom appear to be more interested in finding new ways to mine money out of Eskom, given that the “payments on expiry of five-year contracts” have been wrung dry (the device was used by the IDC in 2006).

Eskom has invented an ingenious form of what is best described as “ghost shares”, which assumes, for the sake of executive remuneration, that Eskom is a listed stock. Gcabashe has been awarded 3,9m of these ghost shares, which are “valued” from time to time. Rest assured that when Gcabashe and colleagues cash in these options, untold millions would be realised. Eskom, which should have started building new power capacity about ten years ago, but is yet to start, is a long way from regaining the public’s confidence.

Since 1994, South Africa’s fleet of electric locomotives has fallen by 12% to 1 914 units; diesel locomotives are down 11% to 1 249 units, and coach numbers have collapsed 37% to 2 711 units. Not one centimeter has been added to the country’s 22 000km railway network, Transnet’s core business.

The IDC is in a class of its own. Ngqula quit as CEO of the IDC in September 2004, after seven years. In its then-financial year to June 30 2004, the IDC posted its first operating loss since being founded in 1940, yet the 12-member executive committee took home R30m in remuneration and bonuses. Ngqula’s share was R6,9m, including a R2m bonus.

In 2001, the IDC, which had become accustomed to “ordinary” impairment losses under Ngqula, wrote off R1,9bn of “exceptional” impairment losses. A further R2,7bn of such losses were written off in 2002. For his part in steering the IDC to the worst year in its long history - an operating loss of R803m in 2004 – Ngqula was paid an absolute fortune, including a hefty bonus.

The IDC’s annual report for 2006 shows how far its executives are prepared to go in hiding behind wave after wave of mirrors and swamp after swamp of misty smoke. Nowhere is it apparent from the opaque accounts, but the fact is that the majority of the IDC’s cash income derives from investments made up to more than half a century before, such as in Sasol (1950) and in Sappi (1951). The IDC also inherited – from many years ago - exceptionally valuable investments in BHP Billiton. The massive write-offs under Ngqula resulted in paper stakes in Mittal and Kumba. Ngqula is, of course, chairman of Mittal, South Africa’s most unpopular company.

Beyond these non-managed IDC investments, it’s impossible to calculate how much the IDC earns for itself, but it appears to be less than zero. The IDC runs its show off dividends received from its non-managed listed investments – around R900m in 2006. But the IDC is also selling its “family silver” by liquidating, from time to time, shares held in the listed stocks.

This backbreaking activity, requiring a telephone call or two, raised R630m in 2006, and a mountainous R1,5bn the year before. These kinds of inflows are important for covering the IDC’s bad debts, amounting to R598m in 2006, and R643m the year before. For running this amazing business, IDC executives were paid, as mentioned, R47m in 2006, including R12m in bonuses. Geoffrey Qhena, the CEO, accounted for R4,9m. He’s doing all right.

Read more

Foot-in-mouth disease

2006-09-05T14:54:00.000-07:00

DA: Erwin must resign
10/03/2006 11:25 - (SA)

Cape Town - Claims made on the eve of last week's municipal elections by Public Enterprises Minister Alec Erwin that damage to a generator at the Koeberg nuclear plant was sabotage were a disgrace, and he should resign, says the DA.

The claims "crossed a new red line" in SA politics, DA leader Tony Leon said in his weekly on-line newsletter on Friday.

"(The minister) has now abused his office in an attempt to swing the elections in the ANC's favour, without any regard for what his accusations could mean for the future of democracy in South Africa.

"His accusations were not only a disgrace, but a failure, and a damaging blow to his own credibility.

"In most democracies, Mr Erwin would already have been forced to resign. And so, too, would all the ministers responsible for Eskom's failures, as well as Eskom CEO Thulani Gcabashe."

The day before the March 1 local government elections, Erwin, speaking in Pretoria, said: "Let me be very clear on this. The bolt that caused the generator's destruction did not get there by accident."

He also said criminal charges would be brought against those responsible.

ANC ploy 'to shift blame'

Leon said the on-going power crisis in the Western Cape was largely the result of policy decisions by the African National Congress government in the late 1990s, which instructed Eskom to stop building power plants.

It was also the result of a skill shortage at the national power utility, Eskom.

"These facts, and a lack of evidence to support any other conclusions, forced Mr Erwin to backtrack after the elections, claiming that he had not used the word 'sabotage', and that the media had manipulated his remarks.

"But an ordinary reading of his remarks on the occasion - as well as camera footage of the conference - clearly indicated he was making an accusation of sabotage. He is even shown clearly using the word 'sabotage'," Leon said.

Furthermore, after the elections, Erwin had continued to insist that "human instrumentality" was to blame, saying that "everything points to someone placing [the bolt] there".

Leon said the claim was an ANC ploy "to shift blame for (its) mismanagement, with the intent of influencing the outcome of the next day's elections".

He also accused certain media of going along with the deception.

"The SABC television news reported Mr Erwin's claims of sabotage as if they were established facts. It presented no alternative views and gave no opportunity to the DA or other opposition parties to respond," he said.

Leon said it was deeply ironic that Erwin, who as a trade unionist faced down the repressive apparatus of the apartheid state, had now come to mimic that regime's method of dealing with its political opponents.

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