BROADBAND INFRACO BILL, 2007 Portfolio Committee on Public Enterprises, Cape Town 16 May 2007

1. BROADBAND INFRACO BILL, 2007 Portfolio Committee on Public Enterprises, Cape Town 16 May 2007

2. Table of Contents • Background • Introduction • Introduction of the Bill • Purpose of the Bill • The Bill: Servitude rights for Infraco • The Bill: Expropriation by Minister • Implications of the Bill • Conclusion

3. Background • Eskom Holdings Limited, through its subsidiary Eskom Enterprises (collectively: “Eskom”) and Transnet Limited (“Transnet”) developed and deployed a national long distance optic fibre network in anticipation of the establishment and licensing of Neotel (previously called SNO Telecommunications) (Pty) Ltd (“Neotel”). • Government determined that instead of disposing of the Full Services Network Assets comprising the national fibre optic network (“FSN”) to Neotel, Government should continue to own and invest in critical infrastructure such as communications infrastructure in order to leverage such infrastructure for economic growth. • Eskom and Transnet have continued participating in Neotel as shareholders in accordance with the provisions of the now repealed Telecommunications Act, 103 of 1996.

4. Introduction • Broadband costs in South Africa are prohibitively high. • Investigations into the high broadband costs in South Africa compared to international counterparts revealed that the largest connectivity costs are attributable to national backbone connectivity and international connectivity. • The logical conclusion was to intervene to address these national backbone and international connectivity cost structures. • Therefore, as part of its strategy to accelerate economic growth, Government has decided to expand the availability of broadband access to bridge the digital divide and contribute to lowering the costs of doing business in South Africa. • The proposed model was an SOE (Infraco) that will own the FSN. The Minister of Public Enterprises (“Minister”) agreed with Eskom and Transnet to consolidate the FSN into an Eskom subsidiary, Rosherville Vehicle Services (Pty) Ltd (“RVS”) and for Government to purchase the shares of RVS. RVS will change its name to Broadband Infraco (Pty) Ltd (“Infraco”).

5. Introduction (cont.) • Infraco will operate a broadband network and provide broadband network services that will provide access to undeveloped areas and bandwidth requirements for specific projects of national importance, including, amongst others, scientific initiatives and video streaming of international events.

6. Introduction of the Bill • On 18 April 2007 a full cabinet meeting confirmed and approved the following: • transfer of the FSN from Eskom and Transnet to Infraco; • acquisition of the Infraco shareholding from Eskom by Government represented by the Minister; • establishment of Infraco as a SOE; and • submission of the Infraco Bill to Parliament for adoption • The draft Bill has been published in Government Gazette No. 29878 dated 11 May 2007.

7. Purpose of the Bill • The purpose of the Bill is to provide for the – • acquisition of the Infraco shareholding by Government; • transfer of the FSN from Eskom and Transnet; and • future conversion of Infraco into a public company. • The Bill records that the main object of Infraco is to provide affordable broadband access. • Infraco’s borrowing powers are subject to the PFMA.

8. The Bill:Servitude rights for Infraco • The Bill also authorises Infraco to exercise all of the rights attaching to the FSN, primarily servitude rights. • The Bill extends Eskom’s servitude to electronic communications and Eskom and Transnet are required to allow Infraco, upon agreement, to use the servitudes to provide electronic communication network services to fulfill its purpose and mandate under the Bill and its founding documents. • Transnet, which owns the land on which the FSN sits, is required to register servitudes on its land in favour of Infraco • Compensation payable by Infraco for the servitudes will be paid in accordance with the Constitution.

9. The Bill: Expropriation by Minister • The Bill further authorises the Minister to expropriate land on behalf of Infraco and pay compensation as contemplated in the Constitution. • The Minister’s expropriation authority is limited by the requirement that the land must be reasonably required for public purposes or in the public interest and to attain Infraco’s objects. • Further, Infraco must show the Minister that it is unable to acquire the land on reasonable terms and • Compensation will be paid in accordance with the provisions of the Constitution.

10. The Bill: Expropriation (cont.) • The Bill provides that • Infraco will become the owner of such expropriated land; • Infraco will pay any prescribed fees, duties and other charges as if it had purchased the property; • Infraco will refund all costs incurred by the Minister in expropriating the land; • The relevant provisions of the Expropriation Act apply, subject to the compensation provisions of the Constitution; • All unregistered rights relating to the expropriated land must be expropriated separately; • In assessing the payable compensation as contemplated in the Constitution, the applicable provisions of the Expropriation Act must be applied insofar as it is just and equitable to do so; • The expropriation provisions of the Bill apply only for as long as the State is the majority shareholder of Infraco.

11. Implications of the Bill • The Bill authorises Government to acquire the shareholding in Infraco • The Infraco differs from the other enabling legislation the Department has tabled before Parliament because of the nature of the infrastructure that Infraco will be acquiring from Eskom and Transnet • The conversion of Infraco into a public company will enable Infraco to access funding from the private sector particularly given the dynamic nature of the sector in which it participates, the significance of its infrastructure and the critical role of such infrastructure and services for the South African economy • DPE and NT are still resolving classification of Infraco under the PFMA

12. Conclusion THANK YOU