Assessing the position now it is doubtful that Denel was sufficiently capitalised as a company when the previous government hastily formed it. The structural position of Denel has also changed, as South Africa's defence needs changed. In 2004 some 58% of turnover was exports. The impact of Rand movements has therefore been hard-felt and it is not easy to adjust to such volatile pressure when everything else in the commercial calculation moves slowly.

However, Denel has within its operations very valuable capacity -both human and technological. It does and will play an important role in the development of South Africa's technological capacity. This means that Denel can play an important role in the provision of defence and security equipment needs of the South African National Defence Force and other branches of our security services. This applies particularly to important equipment that would enhance our peacekeeping capacity in Africa. Accordingly, the State sees the enterprise as being strategic and will retain it in State's hands. An additional factor in this decision is the possibility of important strategic production alliances with companies in India and Brazil. We also have to strengthen and expand existing alliances with European defence companies. These strategic initiatives will result in an improvement in Denel's financial standing. In addition, we wish to fast track the disposal of non-core assets, which could realise up to R730 million.

The task now facing us is to turn Denel's fortunes around. Mr Moche has led a process of restructuring in Denel that now has to be taken further and more focus engendered. There is agreement that this will be best done by handing the change baton to a new CEO. Accordingly, after a tough and successful stay at Denel Mr Moche will hand over to Mr Shaun Liebenberg at the end of May.

The last week has seen much speculation on this move based on the inevitable 'sources'. I have labelled this as speculation with just cause since as I indicated at the outset, processes and individuals have to be respected. The speculation was clearly from self-serving 'sources' and does not credit those sources or the reporters involved. The fact of the matter is that a sensible business decision has been made based on the position in front of the Board and the Shareholder. Complex and detailed discussions were held with the parties and confidential processes followed in the interests of all. Contrary to uninformed comment Mr Moche does not leave under a cloud from the point of view of government and myself as Minister. I wish to sincerely thank him for the immense task he undertook and the diligence with which he carried out this challenge. I am confident that he will do well in his future positions. He earns my personal respect for his commitment to the interests of Denel and the country. Many could learn from his conduct.

I would like to thank Mr Zoli Kunene and Saab-Grintek and Saab for the way they have worked with us in the interests of Denel and indeed the national interest at a time when they themselves are making important changes. Releasing Mr Liebenberg was no easy task, but the process has been handled by all concerned with dedication and commitment. This bodes well for the ongoing work of strengthening Denel.

A platform has now been built for further consolidation and partnership formation in Denel. The immediate tasks of significance are to prepare for the A400m project, implement the deployment of the Rooivalk with our peacekeeping forces by September 2007, continue the development of the Mokopa missile for use on the Rooivalk, strive to win the bid for the Hoefyster infantry-fighting vehicle, attract back many of the skilled personnel that have been lost and stabilise the financial situation of Denel.

We will develop a focussed defence industry enterprise and will now give priority to strengthening our partnerships with companies such as EADS and Saab among others. We have also developed good working relations with the Ministry of Defence and the Chairperson of Armscor and are able to address matters of common and strategic concern.

Mr Zungu, Mr Moche, Mr Liebenberg and I will address the management and unions at Denel on Monday morning.

Eskom

Eskom is entering an exciting time both for its own operations and for the South African economy. The expansion of our energy supply is basic to our future economic growth, development and prosperity. The current peak demand is 34 000MW and Eskom capacity is 35 000MW. It is evident that we have to move with speed. The R12 billion rehabilitation programmes of Camden, Grootvlei and Komati is now underway and will result in some 3 612MW in new capacity when complete. The two peaking stations - one Eskom and one IPP - will provide 2 000MW by 2009.

We are in the process of engaging with the Ministry of Minerals and Energy to define a predictable investment environment and pricing dispensation. This is needed in order to plan the precise additional investment programme of Eskom. This is by no means a simple exercise, as we have to maintain our competitive position in regard to price, ensure sufficient revenue to finance the build off the Eskom balance sheet, take into account envisaged changes in transmission and distribution and how we deal with very large customers. We now also have to seriously address the needs of various fuel diversity initiatives. Despite this complexity I am pleased to say that we seem to be making good progress with the lead department on these policy and regulatory matters, which is the Department of Mineral and Energy.

In the last year, we have also given decisive impetus to the Pebble-Bed Modular Reactor project. This project is now factored into our future energy planning and we are negotiating a major intention to purchase agreement between Eskom and the PBMR. This is probably a world first and forms the foundation for the further development and industrialisation of this technology. Given the urgency with which we now have to address climate change and the hopes for future hydrogen energy sources the PBMR now assumes a key place in our long term planning. It will place South Africa at the forefront of energy technology.

Another reason for the expeditious work in this whole area is to ensure that we can finalise negotiations with Alcan in regard to a new aluminium smelter in the Coega Industrial Development Zone. I believe the prospects for such a project are good but we will await more detailed financial studies, negotiations between the parties and then decisions by the key players.

Eskom will also dispose of some 14 non-core enterprises and assets with a combined asset value of some R200 million. It is hoped that the majority of the transactions will be completed in this financial year.

Eskom has done very well under the guidance of Dr Rueul Khoza and the Board and the excellent management led by Thulani Gcabashe. I am pleased to announce that I have confirmed a Board decision to appoint Mr Gcabashe for another three-year contract as the CEO of Eskom. After many years of sterling service as Chair of Eskom Mr Khoza will stand down in June as will certain other members of the Board. These changes will be announced at a later date.

Well done Mr Khoza and the Board, this has been a great service to South Africa.

With acknowledgement to Sapa.