Good morning, ladies and gentlemen and thank you for coming to our first media briefing for this year.
Perhaps I should start by reviewing the developments in 1996 before outlining the challenges that face the Ministry of Public Enterprises in 1997.
1. OVERALL PERFORMANCE OF STATE-OWNED ENTERPRISES
The overall performance of the state owned enterprises which fall under our jurisdiction has been satisfactory especially Denel. Eskom, Safcol and Alexkor. Both Aventura and 'Transnet did not perform as well as they could have, for a variety of reasons.
l.l AVENTURA
Aventura's excessive dependency on inappropriately borrowed funds and lack of recapitalisation for refurbishing the resorts contributed to the company's poor performance. However, a dramatic turnaround in performance has seen the company achieving operating profits for the first time in its history.
With a turnover of up to R123 million the company turned round a loss of R8 million in 1996 to its current operating profit position. This represents a 43% growth since commercialisation started three years ago. However, the company still needs to be re-capitalised for refurbishment of its resorts in order to compete effectively in the market place.
l.2 TRANSNET
Transnet has been making losses and in 1996 they recorded losses of approximately R250 million. This was indicative of the economic cycle of the country as well as attributable to the contributions to the company ' s pension fund deficit.
l am happy to report however, that the situation has since improved because Transnet recorded a turnover of almost Rl0 million during the six-month period to September 30.
The company has already acknowledged that the six months of its financial year to end of March this year will be a tough period with earnings remaining under pressure.
During 1995 and 1996 the harbours of Durban and Cape Town experienced severe congestion as a result of excessive traffic volumes inadequate traffic control and the landing of uncleared containers amongst other things. These problems were swiftly identified and immediately addressed.
The equipment purchasing programme was accelerated, manning levels increased, training programmes expedited and improved communication structures implemented. The trade unions played a proactive role in alleviating the problems and commendable progress has been made in ensuring that similar difficulties do not recur.
Overall, the company contributes substantially to the social welfare of the country and provides about 100 000 jobs, training and development of approximately R200 million, provision of affordable transportation to commuters, as well as allocating small black business and professionals opportunities to benefit as suppliers of goods and services.
The current governance issues pertaining to the Board's salaries and involvement are under control and a standard remuneration package based on performance and delivery of measurable objectives is being investigated by an outside company.
l.3 ESKOM
Eskom has continued to perform well above the overall economic growth rate of the country with revenue increasing by 11 percent to R17, I billion and net income rising to R2,7 billion or 19,8 percent. ln the 1996 performance year to date, all indications are that Eskom will exceed its budgeted revenue and net income.
1.3.1 Tariff and pricing
Eskom has also managed to maintain pricing levels below inflation with a price increase in 1995 at four percent and expectations last year were anticipated at the same level.
1.3.2 Electrification programme
Eskom's electrification programme called for the connection of 300 000 homes by the end of last year and the company managed to improve the lives of many South Africans. This was accomplished at a cost of Rl,2 billion which is an increase of five percent from 1995. The programme is currently on track; and indications are that the connection figures will be exceeded.
1.4 DENEL
Denel continues to be the flagship among the state-owned enterprises of the Ministry and the office for Public Enterprises with consistent increases in revenue taxation, profits and dividends. Revenue in 1995/96 increases to R3,4 billion and taxation amounted to R46,9 million while dividends of R100 million were paid to the shareholder.
The overall objective of Denel is to be a world class competitive arms manufacturer and distributor, thereby contributing, to the government's Reconstruction and Development Programme, foreign currency, the provision of employment and payments to the treasury in the form of taxes and dividends.
1.5 SAFCOL
Since commercialisation the company's transformation from a government protected and managed department to one that operates in a competitive deregulated sector has proceeded smoothly. Safcol has achieved consistent financial, social and environmental objectives.
In 1995/'36 the company achieved a dividend payment of R11 million and Rl5 million tax. In order for Safcol to sustain its performance and growth it needs to operate on an equal basis with its competitors (SAPPI and MONDl) and to increase its access to international markets, technologies, financial resources and management.
Furthermore, Safcol requires a strategic plan that will allow its operations to beneficiate its saw log output and hence this will require an important capital injection into the company. This capital injection can be sourced via various means including privatisation strategies.
1.6 ALEXKOR
For the past two years Alexkor has experienced declines of between five and six percent in profitability and hence made no direct dividend payments to the State. However, the after tax proceeds of the company are subjected to a 30 percent levy which is paid into the Alexkor Development Fund.
In spite of the lack of profitability, it has a strong balance sheet and reserves of up to a R100 million. This enables it to sponsor- non-core activities like farming and agriculture as well as supporting the entire community of Namaqualand.
The current challenges facing Alexkor are:
That, ladies and gentlemen is the current status of the six enterprises under my Ministry.
As far as the plans for the restructuring, and in some instances the privatisation of these enterprises are concerned this will be our approach this year and in future.
1. Telkom
Requests for proposals from four prospective Strategic Equity Partners (SEPs) namely SBS Malaysia Telkom, Deutsche Telkom and France Telkom were sent out on 4 December 1996. SBC (USA) and Malaysia Telkom will bid jointly. Preliminary responses from bidders were analysed and following discussions and negotiations with the SEPs an invitation to present final bids was issued this past weekend (8-9 February) .
The government's position on key issues has been established. Final bids are due by the end of this month (February). The completion date of a sale of up to 30 percent of the equity of Telkom remains the end of March 1997.
2. Sun Air
BOE NATWEST and Moseneke and Partners have been appointed to advise on the sale of 100% equity in Sun Air. The Restructuring Committee has agreed to a comprehensive position paper including criteria for the evaluation of bids.
The lnter-ministerial Cabinet Committee (IMCC) took the following decisions at its meeting on 6 February this year:
a. the 25 percent limitation on foreign ownership will be reviewed to allow foreign shareholders of an airline of up to 49 percent;
b. as a guideline only, the distribution of shareholdings in privatised Sun Air could be as follows:
c. a percentage to a trade investor;
d. a percentage to a black grouping;
e. a percentage to a National Empowerment Fund for subsequent distribution to appropriate historically disadvantaged investors
f. an amount of R10 000 per employee has been agreed on for this transaction.
3. Aventura
The government has responded with its approved position on the restructuring proposals put forward by labour and management in August last year. The way is now clear for the Enterprise Restructuring Committee to elaborate detailed restructuring proposals for the sale of 100 percent of the equity to a consortium of a sector specialist company and one or more groups of historically disadvantaged investors.
Just as in the case or Sun Air, there will also be an employee share ownership scheme. The overall government advisor, HSBC, is co-ordinating the process of forming an advisory team for the sale of Aventura. The advisory team will include representatives from the Industrial Development Corporation (IDC), the Development Bank of Southern Africa (DBSA) and the Ministry for Public Enterprises.
4. Safcol
I, as Minister for Public Enterprises, together with my colleague, the Minister for Water Affairs and Forestry, have agreed to move forward with the restructuring of Safcol independently of the work being done to improve the profitability of the former homelands forests. At the first meeting of the Restructuring Committee, I indicated the general approach to be followed. There is another meeting of the Restructuring Committee this Friday, 14 February 1997 at which issues such as the time-table for restructuring, options for restructuring and the main corporate issues and concerns will be discussed.
S. Airports Company
Our position as government is that we should seek a strategic equity partner for the Airports Company. We are however, still involved in discussions with labour about the matter through the NFA Transport Sector Committee. Another round of talks with labour is scheduled for this Friday, 14 February 1997.
6. South African Airways (SAA)
It is agreed generally that in view of its importance as a national asset and the severity of its problems, the restructuring of SAA should be speeded up. Basically there are two main issues . First, the Government's policy to seek a Strategic Equity Partner- is to be referred to the sub-committee of the National Framework Agreement- Transport sector for further discussion including discussion of other strategy options. Secondly there is an urgent need to press ahead with the corporatisation of SAA and make the many changes needed in management structure, legal form, moving people, changing contracts, determining a balance sheet structure, etc., which are needed to convert SAA from a division of Transnet's Pension and Medical Aid Fund deficits which has to be resolved before any of Transnet's businesses can be privatised to any degree. A workshop on the restructuring of SAA is set for 25 and 26 February.
7. Transkei Airways
I am happy to report that after fruitful discussions between Labour and Management at Transkei Airways, workers were given severance packages early this year. This followed liquidation of the cash-strapped company in December last year.
8. Autonet
Preliminary proposals for restructuring have been produced by Management, after consultation with labour. Government is assisting management and labour at the operational level to refine these proposals.
Parallel to the work on the restructuring of state-owned enterprises, considerable attention has been given to certain general issues.
Empowerment -
The principle of a National Empowerment Fund has been accepted by the IMCC and detailed implementation is now being studied.
Corporate governance -
The Government' s Draft Protocol on corporate governance in the public sector has been reviewed and will be revised for distribution to the IMCC on 6 March.
ESOPs -
A model scheme for encouraging employee share ownership in restructured companies has been produced and approved in principle by IMCC. Details of its application in individual cases will be treated as and when they arise, e.g. Sun Air (see above).
This in a nutshell ladies and gentlemen, is the time-table for the restructuring of state-owned enterprises.
I thank you
Enquiries: Ministry for Public Enterprises; Wandile Zote; Tel: (021) 461 6376 or 083 675 8916