NEW MINISTER OF PUBLIC ENTERPRISES BRIGITTE

C O N F I D E N T I A L SECTION 01 OF 04 PRETORIA 002612 SENSITIVE BUT UNCLASSIFIED SIPDIS AF/S PLEASE PASS TO A/S FRAZER EEB FOR CIP KATHERINE TOWNSEND E.O. 12958: DECL: 11/18/2018 TAGS: EAIR ECPS ELTN ENRG PGOV SF SUBJECT: NEW MINISTER OF PUBLIC ENTERPRISES BRIGITTE MABANDLA REF: A. PRETORIA 2477 ¶B. PRETORIA 2403 ¶C. PRETORIA 2401 Classified By: Economic Counselor Perry Ball for reasons 1.5 (B) and (D ) ¶1. (C) SUMMARY: New Minister of Public Enterprises Brigitte Mabandla brings little technical experience to her new position as government point-person for a diverse, troubled portfolio of state-owned enterprises. There is a high probability for delay in state power utility Eskom's capital expansion program, including choosing a supplier for new nuclear power plants. Loss-making South African Airlines will remain a headache and Mabandla will be confronted with requests for more cash. The rail, ports and pipeline company Transnet's expansion program will be more influenced by the global credit crisis than Mabandla's tenure. She will have limited influence in the telecom sector where industry seeks more liberalization than the Minister of Communications is willing to offer. There is a high likelihood that she will adopt a passive steady-as-she-goes posture in managing her ministry, given her lack of experience and her role in a care-taker government. Mabandla is not expected to continue in a Zuma government. End Summary. -------------- Managing Challenged Parastatals -------------- ¶2. (SBU) South African President Kgalema Motlanthe appointed new Minister of Public Enterprises Brigitte Sylvia Mabandla on September 25, 2008 (Ref A). She previously served as Minister of Justice and Constitutional Development from 2004 to 2008. Prior to that, she served as Housing Minister from 2003 to 2004 and as Deputy Minister of Arts, Culture, Science, and Technology from 1995 to 2003, after first being elected to Parliament in 1994. She has been a member of the ANC National Executive Council since December 2007. Mabandla was born November 23, 1948. From 1974 to 1975, she acted as youth coordinator for the Institute of Race RELATIONS in Durban. Mabandla obtained a law degree from the University of Zambia in 1979. She lectured on law and English in Botswana for the first half of the 1980's. The rest of the decade she spent as a legal advisor to the ANC Lusaka Legal and Constitutional Affairs Department. She returned to South Africa as member of the ANC's constitutional and negotiating team from 1990 to 1994. During this period, she was very active in the field of human rights, specifically minority rights, children's' rights, disabled people's rights, and women's rights, working with a variety of NGOs. Mabandla's official biography lists her as married, but does not mention children. A 2006 press report mentions that she had a five-month-old baby when she and her husband Lindelwa Mabandla were arrested in Durban in 1975 in celebrations of Mozambique's liberation. ¶3. (C) Many industry observers were not excited about Minister Mabandla's replacement of technocrat and interventionist Alec Erwin at the helm of the Department of Public Enterprises (DPE),the department with overall responsibility for the loss-making national carrier South African Airways and several other inefficient and troubled state-owned enterprises. These include the power utility Eskom; the rail, ports and pipeline company Transnet; armaments manufacturer Denel; broadband company Infraco; next generation nuclear power producer Pebble Bed Modular Reactor Qgeneration nuclear power producer Pebble Bed Modular Reactor (PBMR); diamond miner Alexkor; and forestry assets manager Safcol. (Note: Eskom and Transnet generate profits, but are seeking ambitious capital expansion programs. PBMR is working on research and its permit to start a small demonstration plant and requires additional capital. End Note.) Mabandla does not bring technical acumen to her position and was not perceived as a good Minister of Justice. At best, she will have a difficult task getting up-to-speed with her diverse and challenging portfolio of companies. At worst, some observers wonder if she has been designated to preside over breaking up the ministry and spinning the parastatal companies off to their relevant economic ministries. Her incumbent Director General Portia Molefe is viewed as a capable lead bureaucrat in the Ministry, who can serve as her tutor. Energy Officer has heard her speak knowledgeably at a number of conferences. -------------- PRETORIA 00002612 002 OF 004 Eskom Struggles to Provide Power -------------- ¶4. (C) Power utility Eskom is perhaps Mabandla's weightiest challenge, given Eskom's supply shortfall in provisioning the domestic and regional electricity markets and the controversial load-shedding earlier this year (Ref B). Industry analysts fear the change at the helm of the ministry may delay huge capital-intensive projects aimed to expand electricity generation for the country to mitigate its power crisis. Standard Bank Economist Johan Botha told the press, "She has to walk in completely cold. She won't put hand to paper to approve the big contracts like the nuclear one before she has been fully briefed." The market is watching to see how soon, or if at all, Mabandla will give her approval to plans to build the country's second nuclear plant, as part of the ambitious goal of a fleet of new plants. Westinghouse and Areva of France are the qualified bidders. Westinghouse is confident that the deal will still be made, despite a series of delays and challenges to Eskom's financing capacity (Ref C). The Westinghouse local rep told Energy Officer that Mabandla is expected to adopt a consensus - rather than an independent - decision-making style, given her lack of energy experience. Department of Minerals and Energy Chief Director: Nuclear Tseliso Maquebela told an energy conference that the government would have to revisit nuclear plans given the new circumstances, but reaffirmed the SAG's commitment to increasing nuclear's share in the energy mix. He said the SAG was waiting for Eskom's decision on the supplier. Mabandla has quickly embraced the Eskom party line to brow-beat consumers for not doing enough to help mitigate the power crisis. ¶5. (C) Vodacom Chairman Oyama Mabandla, an influential business and POLITICAL leader and the nephew of Minister Mabandla, told Economic Counselor and ICT Officer that her lack of technical expertise was an advantage in that she would be forced to take the advice of technical experts in Eskom and the DPE to make the correct decision about the nuclear contract, rather than rely on her own opinions. He explained that Erwin was too much of a technocrat and intervened unnecessarily in all decision-making processes. Oyama Mabandla said his aunt would rely extensively on Director General Molefe's expertise, whom he described as competent. -------------- South African Airways Bleeds Cash -------------- ¶6. (SBU) The aviation industry has greeted new Public Enterprises Minister Brigitte Mabandla with two simple requests: "No more handouts to South African Airways (SAA)" and Open Skies for Africa. (Note: SAA used to be part of the state-controlled freight and transport logistics group Transnet, but was purged from Transnet's balance sheet when Transnet undertook major restructuring initiatives to eliminate all loss-making divisions. End Note.) Comair Joint Chief Executive Gideon Novick told the press, "Her appointment did not come a moment too soon. The previous minister was a disaster and his interventions hurt the industry." "The new minister must just give taxpayers a break and instead give SAA to people who know how to run an airline. The state has not realized any return on the billions of rand pumped into SAA over the years. These subsidies create distortions in the market," added Novick. Qsubsidies create distortions in the market," added Novick. ¶7. (SBU) SAA received R11.2 billion (USD$1.1 billion) in subsidies and bailouts during Erwin's tenure. The money covered substantial losses incurred as a result of foreign exchange hedging, impairment of aircraft assets, major restructuring efforts, and retrenchments. During the March 2007-ending financial year, SAA returned a disastrous set of results and the airline asked for recapitalization. SAA announced improved results for the year ending March 2008, but these results excluded restructuring costs. The airline reported a significant turnaround to post a R123 million (USD$12 million) net profit (excluding restructuring costs) from ongoing operations in March 2008. This compares to a loss of R883 million (USD$88 million) in the prior year. Despite industry criticism, Mabandla recently praised SAA CEO Khaya Ngqula for the implementation of the restructuring program and confirmed to the press that "no consideration is being given to replacing the CEO of SAA." PRETORIA 00002612 003 OF 004 ¶8. (C) Officials from the Department of Foreign Affairs (DFA) and the Department of Trade and Industry recently confirmed the financial difficulties faced by SAA during discussions to increase direct routes to the U.S. These financial difficulties are the reason why the proposed new direct route from Johannesburg to Chicago and a number of existing routes to Europe were canceled in 2007. They told Transport Officer that SAA had once again approached the government for a bailout package. DFA officials explained that South Africa's ability to negotiate bilateral liberalized airlift strategies would be affected by SAA's balance sheet. They also confirmed that DPE would not play a major role in initiatives such as Open Skies for Africa, which falls under the purview of the Department of Transport and the African Union. -------------- Transnet Faces Financial Limitations -------------- ¶9. (SBU) Transnet's expansion plans are not expected to be influenced by the change at the helm of DPE. However, global economic conditions and Fitch's recent downgrading of South Africa's sovereign credit rating could affect Transnet's ability to borrow from international markets to fund part of its R80 billion (USD$8 billion) expansions plans. Transnet plans to expand capacity at its railways, ports, and pipelines over the next five years. Key projects that have been approved include: the expansion of the coal railway line to the port of Richards Bay and the iron-ore railway line to the port of Saldanha, including upgrades to the rail line and port system; the widening and deepening of the Port of Durban entrance channel, including the redevelopment of Durban's Pier 1 as the container-handling facility and an increase in the capacity of the Durban car terminal; the widening and deepening of the Cape Town container terminal; the refurbishment and renewal of the freight rolling stock; the continued development of the new Port of Ngqura; and the construction of a multipurpose pipeline between Durban and Johannesburg. Transnet CEO Maria Ramos, who was also a trained economist and rated by Fortune magazine as South Africa's most powerful businesswoman, has cautioned the country's policymakers against being "too adventurous" when shaping future economic policy. She has also urged them to take full account of the fact that the world economy is probably entering its biggest crisis since the Great Depression. (Note: Maria Ramos is also the long-time partner of Minister of Finance Trevor Manuel. She recently announced that she will take a new job as CEO of ABSA Bank as of March ¶1. End Note.) -------------- Limited Influence over Telkom -------------- ¶10. (SBU) Few industry analysts expect major changes in the ICT sector or a decline in the government's support of state-owned broadband company Infraco with the removal of Alec Erwin from the DPE. BMI-Tech Managing Director Denis Smit described the Infraco project to the press as one of the few positive government interventions in the sector since it is expected to reduce bottlenecks in improving bandwidth capacity from undersea cables landing in South Africa. ICT policy in the country is widely recognized as conservative and the pace of liberalization slow. However, it is the incumbent Minister of Communications, Ivy Matsepe-Cassaburri, Qincumbent Minister of Communications, Ivy Matsepe-Cassaburri, who is criticized about the slow pace of liberalization. Major industry groups are pinning hopes of ICT sector de-regulation to Matsepe-Cassaburri's possible removal from the Ministry after the spring elections. Minister Mabandla has formal control over Infraco, but does not directly control Telkom as a primarily private entity. ¶11. (C) The South African Government's relationship with state-controlled fixed-line operator Telkom is complicated by the dual desires to increase Telkom profits and to reduce ICT costs. The Mbeki cabinet approved the sale of Telkom's controlling interest in mobile-operator Vodacom to UK-based Vodafone. Some analysts predicted that the new regime would reverse this Mbeki cabinet decision. Nevertheless, the incoming South African cabinet embraced the decision, and the transaction is expected to be completed shortly. Vodacom Chairman Oyama Mabandla told Economic Counselor and ICT Officer the proposal received wide-support because the Zuma camp wanted to send pro-market signals to international investors. Additionally, the transaction will result in the PRETORIA 00002612 004 OF 004 influx of more than USD$2 billion in foreign direct investment into South Africa at a time when global economic conditions are adding pressures to country's current account deficit. -------------- Mabandla and SAPS Commissioner Jackie Selebi -------------- ¶12. (C) Former Justice Minister Mabandla has been compromised in the eyes of many South Africans by her failure to prosecute former South African Police Service (SAPS) Commissioner Jackie Selebi, who is the subject of corruption allegations. Oyama Mabandla told the Economic Counselor last year that he had asked his aunt at a family function if Selebi was "a crook." She agreed that he was. When her nephew then asked why she went along with the suspension of Vusi Pikoli, the National Prosecutors Authority head who was prosecuting Selebi for corruption, she implied that it was difficult to go against the wishes of President Mbeki. Given Zuma's publicly stated belief that he was persecuted by the Mbeki government, while other Mbeki loyalists like Selebi were protected, Minister Mabandla is fortunate to still have a job with the Motlanthe government. Oyama Mabandla said she was kept on, along with any other ministers who chose to remain, to reduce the destabilizing impact of President Mbeki's departure. He told the Economic Counselor earlier this month that he did not think she would be asked to continue into the next government. "She is not part of the Zuma camp. She has not been told that she will leave," he said, "but she expects that to happen." -------------- Long-Standing Family Ties in the U.S. -------------- ¶13. (C) Minister Mabandla has an older sister-in-law, age 75, and a brother-in-law who emigrated to the U.S. in 1962, during the apartheid years. They settled in San Diego, California where one or both of them was on the faculty of the University of California at San Diego. Oyama Mabandla is the child of another brother-in-law. Oyama Mabandla went to live with his relatives in San Diego for six months in the early 1990s before he got a place of his own. He lived in the U.S. for almost ten years and got all of his tertiary education there, including an a BA degree in POLITICAL Science at UC San Diego and a law degree in Corporate Law at Colombia University. He once had a green card and has a child who is a U.S. citizen. He said he was very fond of the U.S. and in many respects regarded the U.S. as his second home. "I feel a deep sense of connection to the country," he said, "even though the feeling is sometimes not exactly reciprocated, especially by the immigration officials." He voluntarily gave up his green card the last time he left the U.S. He is currently in the process of applying for a tourist visa to visit Washington and New York during and after the Presidential inauguration on January 20. Oyama Mabandla is a strong Obama supporter. ¶14. (C) Comment: Minister Mabandla presides over much of the "commanding heights" of the economy, controlling the key sectoral parastatals in power, aviation, and transport - and to a lesser extent, telecom. The Embassy does not expect her to produce radical policy changes. She now sits in a key position for advancing the SAG's potential decision on the next nuclear power plant supplier, but the final decision Qnext nuclear power plant supplier, but the final decision will not be hers. That is because any decision that is made regarding this or any other major infrastructural project will have to be made at the cabinet level. LALIME