In a speech delivered on Monday to the National Council of Provinces, Public Enterprises Minister Pravin Gordhan called on other firms who benefitted from the goings-on at Eskom to follow the example of McKinsey and pay back the money. Here is the speech.
It is my privilege to present the Budget Vote for the Department of Public Enterprises for the 2021/22 financial year.
Chairperson, on the 8th of May, 1996 – 25 years ago – the Constitutional Assembly adopted the first Constitution of a democratic SA.
In the preamble of the Constitution, we advanced our aspirations as one people, of one country, building one nation:
"We, the people of South Africa,
Recognise the injustices of our past;
Honour those who suffered for justice and freedom in our land;
Respect those who have worked to build and develop our country; and
Believe that South Africa belongs to all who live in it, united in our diversity.
We therefore, through our freely elected representatives, adopt this Constitution as the supreme law of the Republic so as to
- Heal the divisions of the past and establish a society based on democratic values, social justice and fundamental human rights;
- Lay the foundations for a democratic and open society in which government is based on the will of the people and every citizen is equally protected by law;
- Improve the quality of life of all citizens and free the potential of each person; and
- Build a united and democratic South Africa able to take its rightful place as a sovereign state in the family of nations.
May God protect our people.
Nkosi Sikelel' iAfrika. Morena boloka setjhaba sa heso.
God seën Suid-Afrika. God bless South Africa.
Mudzimu fhatutshedza Afurika. Hosi katekisa Afrika."
In recent times, some have betrayed our peoples’ aspirations. Insatiable greed, crass criminality, unashamed consumerism, corruption with impunity, unapologetic self-interest has captured the very soul of these elements.
Yet, there is hope. There many more who are bravely, and resolutely exposing the rotten criminals in our midst. They are, we are, endeavouring to secure a SA in which we;
- Establish a society based on democratic values, social justice and fundamental human rights;
- Improve the quality of life of all citizens and free the potential of each person;
As the Constitution says.
Today, as we reconstruct and reposition the SOEs we find that
- It is the workers who pay the price of retrenchments;
- It is our economy that pays the price for inefficiencies and distorted operations;
- It is our country that pays the price for a poorer reputation.
The blame and the anger among us must be placed at the door of those who destroyed and handicapped these SOEs.
Our focus, must be on how we recover as quickly as possible from this destruction.
All of us must focus our undivided attention to those who stole our money, to those who actively collaborated, to those businesses and professionals who enabled this theft, and to those professionals and others who dedicate their energies to defend the corrupt.
We must, in a singular chorus, say "Pay back the money!"
We must together, notwithstanding our political loyalties, demand of the SIU, the Hawks, and the NPA that we want speedier justice for our people.
Recently Deputy Chief Justice Zondo praised the consultancy, McKinsey, for paying back R870 million to Transnet, having paid back a billion to Eskom earlier:
"I think when some people criticise this commission for the costs that have incurred through its work, they remember at least here is one occasion where as a result of discussions between a unit of the commission and McKinsey, a substantial amount of money has been or will be repaid."
We applaud the efforts of the Transnet management and Board, and McKinsey for setting an excellent example. Congratulations must also be extended to the Eskom management and Board for recovering almost R3 billion from ABB, McKinsey and other firms.
Advocate Chaskalson, one of the evidence leaders at the Commission said: "Mckinsey has shown what a responsible corporate citizen does in these circumstances, and I am looking forward to seeing those other companies do."
I am also waiting for SAP, T Systems, the locomotive OEMS that benefitted from Transnet, Trillian, Impulse and others, including financial and legal firms that assisted in these nefarious processes to follow this example. And of course, the infamous Guptas and their South African collaborators.
We must, in a singular chorus, say "Pay back the money!"
In this digital, fast moving age, memories are short. Every event today has clear roots in the corrupt past – pre-1994 or the more recent past.
So we will constantly remind you why these entities, workers and the country are experiencing the problems they are! This department has the unenviable task of rectifying the damage of the past, ensuring operational stability now, and preparing these institutions for the emerging and future dynamics in their sectors.
We have to deal with criminal elements within these SOEs and in associated entities who wilfully damage power stations, steal copper cables, escape with intellectual property and collaborate with people who do not have SA’s interest at heart.
In recent evidence Paul Holden at the Zondo Commission, who runs Shadow World Investigations alongside former ANC MP Andrew Feinstein, detailed the flow of money from our State coffers into the Gupta’s money laundering machinery.
- Companies used as, "First-level laundry vehicles", such as Homix, Fortime Consultants amongst many others, were a part of what now appears to be an international money laundering scheme;
- Almost R50 billion has been lost through State Capture and this number can be traced through invoices and bank statements;
- Although Holden has revealed that the actual number is definitely higher;
- His investigation revealed that the three primary sites of State Capture were Transnet, Eskom and the Free State Provincial Government;
- Transnet, under the direction in part of former CEO Brian Molefe, was responsible for over 81.59% payments relating to state capture, which comes to just over R 40 billion;
- Molefe was also CEO of Eskom from 2015-2016, before being succeeded by Matshela Koko. Under these two individuals Eskom contributed 14.19% of State Capture Expenditure;
- The Free State provincial government contributed almost R 440 million;
- There are many examples of expenditure with no attempts to deliver any value to the government;
- There were also occasions in which the goods or services provided were of such poor quality that it caused additional losses to the state;
- For example, Eskom claiming damages from Optimum with regards to poor quality coal that was delivered in insufficient quantities amounts to R3 billion.
- The law enforcement authorities have been investigating 114 key contracts, 33 high profile criminal investigations involving multiple parties including former board members and executives of the SOEs;
- The Investigative Directorate of the NPA, working with the Asset Forfeiture Unit and the Directorate for Priority Crime, recently froze R1.4 billion in assets of former executives and three private contractors;
- There has also been progress in civil recoveries;
- ABB (an engineering company based in Switzerland) repaid approximately R1.5 billion to Eskom, while McKinsey (a consultancy agency) repaid more than R1 billion;
- R171-million claim against Deloitte, R870-million against McKinsey by Transnet;
- Many claims have been made against numerous other companies alleged to have received payments for fraudulent contracts;
- R5.5-billion Transnet 1064 Locomotive contract;
- R3.8 billion against several former Eskom directors and executives (breaches of fiduciary duties);
- A R595-million claim against Trillian; and a
- R734-million claim against Tegeta (Brakfontein Mine).
Time to act in unison
Crises and pandemics can bring society together around a common purpose, but we know from history that such critical junctures can also divide societies and propel them into chaos. Learning the right lessons and being able to galvanise society for positive change is thus one of the key tasks for governments during the ongoing pandemic.
We have made progress towards our mission.
So what have we achieved in 2020?
- Good governance codes are being embedded in SOEs;
- An integrity and consequence management framework has been developed to establish clear guidelines and expectations of the Shareholder;
- The pursuit of stolen money has yielded progress;
- Prosecution of those responsible, and;
- Guidelines to manage conflicts of interest in the SOCs;
- Operational efficiencies are being addressed, although there is much to do;
- The financial stability of SOEs is a mixed picture, particularly in the context of a constrained fiscus;
- The goal of relieving the pressure on the fiscus remains an important focus and innovative funding solutions are being developed;
- There is greater appreciation of the dynamic changes in the energy, logistics and aviation sectors;
- Organisational transformation initiatives to increase capability and reduce the cost structure;
- Regular engagement with various industry associations to address matters in the sectors of our SOEs;
- The Aerospace and Defence Masterplan was published in December 2020 and it will be tabled in Cabinet in quarter 1 of 2021/22.
There is, of course, a lot more!
According to the International Air Transport Association (IATA), the demand for air travel reduced by 65.9% in 2020 compared to 2019, with international air travel reducing by 75.6%.
Global passenger traffic volumes for H1:2021 are forecasted to rise at by approximately 20% compared to H1:2020. Expectations are that the domestic market will recover by end of 2022, while intra-Africa demand is expected to have much slower recovery.
As at 30 April 2021, SAA was fully out of business rescue.
Eskom is successfully dealing with legacy problems, stabilising current operations and preparing for the new institutional and energy transition objectives:
- Finalised divisionalisation and launching of three divisions with Boards and Managing Directors;
- Each division will have its separate Profit & Losses account;
- A total of 9 400 employees have been relinked with power stations with 6 773 employees moved from corporate functions to divisions in readiness for legal separation;
- The legal separation of the Transmission Company will be completed by 31 December 2021, while also working towards legal separation of the Distribution and Generation Companies by 31 December 2022;
- The management of Eskom’s debt is one of the key priorities to return the entity onto a sustainable path. The entity is continuing to implement its cost reduction initiative, with a saving of R13.5 billion achieved in the 2021 financial year. Most notably was the R83-billion reduction in debt in the 2021 financial year, from R484 billion to R401 billion due to the repayment of the maturing debt and changes in the exchange rate;
- A Just Energy Transition Office was established to manage the socio-economic impact of the transition from coal to renewable energy sources.
Transnet’s new strategy is to drive volume growth through private sector participation by developing key strategic partnerships in its core segments:
- The redesign of the Port of Durban and to reposition it as an African and Indian Ocean hub for containerised cargo;
- In addition to the container and automotive growth strategies, Transnet is enhancing its export growth capability in the bulk sector focussing on mega corridors through the road to rail initiatives;
- Equipment is currently being transferred from the port of Durban to the port of Cape Town to support the export capacity of fruit and "cold goods". The agricultural sector market share has grown by 24% in 2021, with a turnover of R38bn for the industry;
- In order to maintain a competitive advantage, there must be new investment in infrastructure to increase port capacity, investment in adequate equipment, an increase in productivity at the ports, and appropriate tariffs;
- The establishment of TNPA as a subsidiary, and new creative partnerships with the private sector, particularly Black businesses, is absolutely imperative.
2021/22 Programme overview
The Department has been allocated a budget of R36.3 billion in the 2021/22 financial year. Of these funds, R36 billion is allocated to the SOEs in respect of the government guaranteed debts (Eskom – R31.7 billion, SAA – R4.3 billion).
After excluding transfers to SOEs, compensation of employees (COE) is the Department’s largest cost driver. However, this spending is expected to decrease at an average annual rate of 0.9%t, from R185.2 million in the 2020/21 financial year to R180 million in the 2023/24 financial year.
The Department’s baseline, which is R123.5 million over the medium term and will be effected on compensation of employees (R102.3 million), and goods and services R21.2 million.
A clear message
The targets of protest and criticism must be those who stole from SOEs, destroyed the institutional integrity and those who facilitated this corruption.
Workers, unions, businesses and professionals who suffered must unite against these elements.
We appreciate the Boards of the SOEs for their integrity and courage in executing a difficult mandate.
The CEOs of the SOEs have offered bold leadership in a challenging environment, and have introduced innovative thinking.
Finally, to the most important people, the workers at the dockside, on rail lines, at the power stations, along the transmission lines, in the forests, and many other places for their contribution!
It is in these difficult and trying times that we hear Abraham Lincoln’s call to the "Better Angels of our Nature". This is a call for all of us to dig deep into ourselves and go beyond the call of duty. As with similar defining moments in our history, we have risen to the occasion. These times, have positively defined our national identity!! This is who we are - Mandela’s people!!
- Pravin Gordhan is public enterprises minister