Union Buildings, Pretoria, 7 December 1999
I want to take this opportunity of thanking all of you for attending this press-briefing on the landmark workshop held last week. The Lekgotla has undoubtedly brought new impetus to the process of accelerating the restructuring of state owned enterprises. The central issue of the lekgotla was how to derive maximum impact from SOEs through an effective process of restructuring. I believe that the outcomes of the Lekgotla demonstrate the commitment of the Mbeki government to enhanced service delivery, improved efficiency and effectiveness.
We examined at some length the restructuring objectives of Government as set out in 1995. The objectives included facilitating economic growth, funding the RDP, create wider ownership in the South African economy, mobilise private sector capital, reduce state debt, enhance competitiveness of state enterprises, promote fair competition, finance growth and requirements for competitiveness. Whilst some of these goals have been attained to a greater or lesser degree, the Department of Public Enterprises has been tasked to further assess and refine these objectives.
The assessment also comes in the wake of recent experiences with restructuring that must be factored into future processes. The experience has also shown that different restructuring processes are suited to the achievement of different priorities. Over the past few years there has emerged greater pressures for improving the infrastructure to support industrial policy and facilitate regional and international trade. We also have to take into account the impending crises in several SOEs arising from debt, adverse economic conditions,under-investment and un-manageable structures. All of this has made it imperative that we revisit our objectives, priorities and plans.
We are determined to address a critical area that has characterised the restructuring process to-date; the lack of an integrated policy framework. We will be addressing this by reviewing prior policy, past IMCC decisions and developing an integrated policy document on Restructuring by the end of the current financial year.
Various mechanisms would be considered to give effect to the restructuring. This will include management contractors, Strategic Equity Partners, IPOs, divestiture and a whole host of other alternate service delivery strategies. Each of these will be selected on the basis of their responsiveness to the pervasive conditions.
From our recent experience we arrived at the conclusion that unless we tackle the larger public utilities, we will not be able to unlock the desired value and returns expected. We therefore agreed that whilst the restructuring and disposal of non-core entities will proceed apace, we will focus on the big four as priority areas viz. Telkom, Eskom, Denel and Transnet. When we evaluate the top 30 SOEs in South Africa we find that ESKOM, TRANSNET, TELKOM, and DENEL have 91% of total assets, provide 86% of turnover, provide 94% of net income; ESKOM, TRANSNET, TELKOM, and DENEL employ 77% of all SOE employees which is 5% of non-agricultural employment; ESKOM, TRANSNET, TELKOM, and DENEL dominate the key strategic economic sectors and have the potential to boost or undermine overall industrial policy. It therefore makes sense to prioritise the restructuring of these entities whilst maintaining a parallel process for the smaller and non-core enterprises. The Department of Public Enterprises will therefore develop a clear programme for restructuring in light of the state’s overall strategic objectives and will provide a progress report by the 31 March 2000.
We recognise the fact that information on the extent, nature and performance of SOEs is spread across several government departments. In an endeavour to co-ordinate a comprehensive data-base, consolidated in standard format as an effective management tool, we will conduct an audit/review of public enterprises with the view of providing a complete analysis of the state’s portfolio (identifying strategic assets, firms for immediate disposal, potential synergies and opportunities for alternative service delivery) and will provide a progress report by 31 March 2000.
To ensure that our restructuring programme is well managed and the roles clearly defined, all SOEs will endorse the Protocol on Corporate Governance adopted earlier by cabinet. This will also be tied to performance agreements and shareholder compacts. We will enter into these compacts with the ‘big-four’ by the 31st March 2000. These compacts will define performance measures between the four entities and the shareholder. This will improve and formalise a new framework for corporate governance.
We are mindful that key state owned enterprises are under-capitalised and have not adequately maintained their infrastructure and asset base. This has resulted in undermining their performance and negatively affecting their market value. The Departments of Public Enterprises and Finance will jointly undertake an urgent investigation by the 31st March 2000 into their liabilities to understand how their debt can be restructured and/or their asset base re-capitalised. They will also develop a position on the appropriate financial management of SOEs including a focus on tax and optimising dividends.
Given the Governments commitment to ensure that benefits of growth and development is spread beyond the borders of South Africa, it needs to ensure that this developmental role is incorporated into the restructuring process. This is already evident in the many projects that Eskom and Transnet are pursuing to the north of our borders.
With specific reference to Transnet; we will embark on a number of priority areas of focus including augmenting the management capacity for Spoornet, accelerated and urgent disposal of Transnet non-core assets, setting up a joint task team on Transnet debt restructuring by Public Enterprises and Finance and provide a progress report to the IMCC of January 2000. The Department of Transport will also re-examine policy with regard to road and rail haulage in Southern Africa. We will also develop a proposal and programme for the restructuring of Portnet and Petronet and initiate the process of identifying strategic equity partners for Orex and Coal-link by 30 September 2000. The Department of Transport is to establish an appropriate regulatory framework for Portnet prior to restructuring, and the Department of Minerals and Energy to do the same for Petronet and will provide a progress report to the IMCC of February 2000. Obviously some of the decisions above would have to be tested with institutional lenders before being operationalised.
With respect to Eskom, my Department will provide detailed proposals and programme for the restructuring of Eskom noting the present restructuring initiatives that are already underway. By 31st January 2000 a detailed business case and plan for Eskom Enterprises indicating future focus areas, re-grouping proposals and core components of the business will be required from Eskom.
In respect of Denel, we will investigate domestic and international strategic equity partners for the various divisions of Denel. The Departments of Public Enterprises, Defence and Trade and Industry will investigate options regarding aircraft maintenance synergies, and other aerospace options and will provide a progress report to the February 2000 IMCC. We will also be pursuing a rapid investigation of options for restructuring Denel Aerospace involving an international equity partner by the 31st January 2000.
Issued by: Ministry for Public Enterprises
For further info contact: ZAID NORDIEN
082 453 6224