3 December 2012

South Africa: A Taste of What?s to Come: Transnet Overspends By 146 Percent On Pipeline

press release

Public Enterprises Minister Malusi Gigaba must explain to parliament how he intends to reign in cost overruns incurred through the mismanagement of infrastructure projects by State Owned Enterprises (SOEs).

At the end of October, the DA highlighted our concern about the capacity of State Owned Enterprises (SOEs) to raise money for and implement the proposed Strategic Infrastructure Projects (SIPs) to be carried out over the next 15 years at a cost of R4 trillion.

Reports in the media yesterday outlined cost overruns incurred in the construction of the 555km fuel pipeline from Durban to Johannesburg. Initial phase 1 cost estimates for the New Multi Product Pipeline (NMPP) of R9.5 billion have ballooned by 146% to R23.4 billion.

This confirms that our concerns are legitimate and that the South African public is likely to pay dearly for the government's stance that SOEs must drive infrastructure roll-out.

More damning is the explanation given for the overruns by Public Enterprises Minister Malusi Gigaba. Minister Gigaba pointed to the parastatals "lack of capacity and in-house expertise" as well as the consequent "over-reliance on contractors" as the significant challenges facing the NMPP.

A review of the construction schedule of the NMPP revealed that a decision was taken to terminate the main engineering and construction management contractor at the end of phase 1, which had added costs and delays to the project.

This evidence confirms that Transnet lacks the human capital to implement major infrastructure projects, hence the costly reliance on contractors.

The DA therefore maintains that SOEs are not ready to spearhead the SIPs and that greater priority must be given to Public-Private Partnerships (PPPs) to implement the government's grand infrastructure plan.

I will be writing to the chairperson of the Public Enterprises portfolio Committee, Holmes Maluleka, to request that Minister Gigaba appear before the Committee to outline his plans to remedy the shortcomings of SOEs with regard to capability to roll out the proposed SIPs in a timeous and cost-effective manner and to discuss the role that his Department sees for PPPs in this process.

There can be no doubt that increasing investment in economic infrastructure is the right plan going forward. We do, however, need to conduct an honest review of the capabilities of SOEs to finance and implement this program to prevent the needless wasting of public funds.

Natasha Michael, Shadow Minister of Public Enterprises

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