SPECIAL ADJUSTMENTS APPROPRIATION BILL

Presentation to SCOF18 September 2007

Process

• 7 Sept ’07: Informal briefing of PCOF, JBC & SCOF

• 11 Sept ’07: Tabled in National Assembly

• 12 Sept ’07: Adopted by PCOF & 2 Reading Debate

Motivation for a special adjustments appropriation

• Minister of Finance in 2007 Budget Speech indicated that amounts were set aside for Alexkor, Sentech and the Pebble Bed Modular Reactor (PBMR) in the contingency reserve

• These amounts being subject to satisfying of the conditions set out in discussions following the Budget

• Normal yearly Adjustments Appropriation Bill will be too late to deal with financial pressures experienced by Land Bank, Denel, Alexkor, PBMR, Sentech and the 2010 FIFA World Cup Development

PBMR• Department of Public Enterprises (DPE) does

not have money in the baseline to assist the State Owned Enterprises (SOEs)

• In the 2007 Budget Speech a commitment to financing 51 % of the capital requirements of the PBMR was made, with the intention that appropriation of funds be subject to acceptable business plans.

• A contingency for this was then announced.• R1 823,573 million is an interim arrangement to

fund the operational expenses and meet contractual obligations until the end of December 2007.

Alexkor• Settlement of the Richtersveld land claim was

subsequently approved by Cabinet• A condition of the settlement is the continued

operation of Alexkor• In the 2007 Budget Speech, a contingency for

this was announced• R44,7 million covers operational expenses until

the end of March 2008, otherwise debt would be incurred

• By March 2008 agreement with the community on the recapitalisation of the Joint Venture will be finalised

Denel• Government issued an Indemnity to Denel.• A payment of R222 million is required as result of a

claim against the indemnity for damages. Government was notified on 31 July 2007.

• If the claim is valid, but not honoured, the liability could be much higher.

• Before payment, the claim must be externally audited -DPE is presently finalising this process.

• In terms of section 70(2)(a) of the PFMA, payment under a guarantee is a direct charge against the National Revenue Fund, and must in the first instance be defrayed from funds budgeted for by that department

• Appropriation is proposed for two reasons:– It is appropriate that Parliament be appraised of this claim; and– DPE does not have funds on its budget to cover this as a direct

charge

Land Bank• Cabinet agreed to the recapitalisation of the Land Bank,

subject to conditions in respect of its executive management and provision of a turn around strategy

• National Treasury is working with the Department of Agriculture in this regard

• R700 million is required to address the liquidity shortfall and capital adequacy ratio of the Bank, and is subject to such conditions as the Minister of Finance may determine

• A government guarantee to the Land Bank is also required

• The deteriorating position of the Bank resulted from the writing off of large non-performing loans

Sentech• Sentech is repositioning itself as a wireless broadband

wholesale provider and infrastructure developer, providing for bandwidth access to commercial retailers

• The 2007 Budget Speech indicated that Sentech would be considered for adjustment funding on approval of a revised business plan

• National Treasury is able to recommend initial funding of R500 million as contribution to the capital requirements of establishing a broadband wireless telecommunications network

• This allocation is subject to such conditions as the Minister of Finance may determine and related to the refinement of business plans

2010 FIFA World Cup Development• Funding requirements flow from the up front procurement

of input materials for stadiums, like roofs, structural steel, reinforcing steel and site establishment, in order to minimise cost escalation, due to inflation in a “tight market” and exchange rate volatility

• Funding is also required as construction is, in some cases, ahead of schedule (the remainder being on schedule)

• Tight deadlines have been set for the completion of stadiums

• R1 905 million, brought forward from the 2008/09 allocation, is required to ensure that construction is not constrained by cash flow shortages

• Funds to be transferred under the existing mechanism, the 2010 FIFA World Cup Stadiums Development Conditional Grant (Division of Revenue Act, 2007 (Act No. 1 of 2007))

Thank you