Wednesday 18th August 1999
INTRODUCTION
We stand at a critical juncture in the history of Public Enterprises in South Africa. The dawn of democracy and the overwhelming mandate given to our ANC-led government in 1994 placed upon us the gigantic task of democratising every facet of life. For Public Enterprises this primarily meant changing the development path of entities that were largely created to serve minority interests; support the struggle of predominantly Afrikaner capital to establish itself; and later pandering to the political demands of the isolation era.
In the process of changing the development path of these entities transformation was hampered by bureaucratic tendencies that were deeply embedded; cannibalistic financial policies; a failure to adjust to the training and human resource needs of the new era; old style managerial systems; and outmoded non-competitive and sheltered monopolistic environments
Our programme of action over the past five years encompassed transformation, restructuring, empowerment, good governance and a commitment to the RDP and social upliftment.
The strengthened mandate of our second term in office is to drastically accelerate the pace of developmental transformation and of efficient, effective public enterprise governance. Over the past two months, we have already increased the pace for building on the foundations laid over the last five years. This will primarily ensure that public enterprises are used to achieve Government's objectives of empowerment in the broadest sense and contribute significantly to boosting economic growth, infrastructure investment, service delivery and job creation through enhanced global competitiveness.
As we embark on this course of action we believe that the state is not getting optimum return on its investment from state assets. Our task is to realise this goal through an improvement in the management regime and hence the financial returns. In addition, we believe that through a broader process of restructuring and transformation, state assets can make a more focussed development impact and contribute significantly to greater social returns.
To achieve this we will have to radically re-engineer the way public enterprises function. This may include measures such as integrating the activities of such firms across sectors in order to rationalise their business processes. We are confident that this will realise an improved market potential for these entities and greater benefit to all our people.
Our efforts at accelerating the process of transformation and restructuring of public enterprises clearly indicate that these entities must and will align with government's objectives. As the majority shareholder, we have an obligation to the people of South Africa to ensure that public enterprises are better aligned to meet the social, economic and political goals of our new government.
A fundamental question that underpins all our activity is simply: what needs to be done? Identifying the best mechanisms to achieve the objective follows this. We have undertaken to ensure the implementation of a range of policies and programmes designed to establish a better life for all our people.
Government's macro economic policies are premised on the identification of a range of actions that are suited to a dynamic economic environment. One of the ranges of actions is the identification of a positive and creative role for state-owned enterprises at a time when our economy and country are still adjusting to globalisation and to the necessary eradication of the practices and the results of skewed domestic development.
State owned enterprises could and indeed ought to play a number of roles in the provision of goods and services. As economic conditions change, the involvement of these enterprises may also change. Different forms of ownership, including state and arrangements that include the private sector, and/or employees, provide different ways to achieve an efficient and effective means of ensuring the provision of certain goods and services. It is here that the link between state-owned enterprises and service delivery needs to be clarified. Service delivery represents a range of partnerships between the state, private sector and civil society.
Because of the way in which we have identified the co-operative relationship between state, private sector and civil society, the Ministry of Public Enterprises will seek to more actively promote:
The Presidential Review Commission described alternative service delivery as a range of service delivery options involving a spectrum of public, private and non-governmental agencies. This approach attempts to encourage new relationships in service delivery without the Government abdicating its ultimate responsibility for Governance.
We are particularly concerned that the opportunities for empowerment have not been explored to its optimum potential. It is imperative that we expand these opportunities in the areas of investment, capacity development, operational joint ventures and community collaborative partnerships. We want to see drastic improvements in the empowerment initiatives of large parastatals such as Transnet and Eskom that have multi-billion rand procurement budgets. Our experience over the past five years shows that this is not only possible but essential for creating new opportunities for economic growth and development of the emerging sector.
In executing our accelerated mandate, we are acutely aware that developing economies such as ours face acute constraints on very limited resources. The extent of our social obligations such poverty-alleviation, infrastructure delivery and job creation makes our task extremely challenging. In the face of this we need to ensure that public enterprises are turned around from being exorbitant cost centres to contributors to the national fiscus. In this way a positive contribution can be made to reducing our national debt.
Already a great deal of work has been done to ensure that parastatals are contributing to this vision. I believe that another critical component of our efforts is to intensify the promotion of South Africa as a prime investment location. The excellent work of our transport and energy sectors is particularly encouraging in the context of our Southern African regional development initiatives and beyond. In addition, the process of restructuring over the past few years has attracted considerable international interest which bodes well for our future efforts at positioning South Africa as an investment mecca.
We want to build on the restructuring initiatives of the past five years. The objectives of this process as defined in the departmental guidelines which were compiled in 1995 are:
The success of the restructuring programme must be evaluated, and its success measured against the achievements of these objectives. Cognisance must be taken of the conditions prevailing for most of the entities in 1994 when the new democratic Government came to power. Restructuring remains a key element of the policy framework within which the objectives of creating a democratic, non-racial, non-sexist and prosperous society must be pursued.
It must promote:
The provision of affordable, good quality basic services to all South Africans
The economic empowerment of historically disadvantaged communities
The objectives of the Ministry for Public Enterprises are more ambitious and all embracing than simply selling off state assets. They include creating competitiveness and technically advanced companies, attracting investment, improving service delivery and skills development, and attracting international investors and role players to South Africa from a broad spectrum of activities.
As we take forward our mandate on restructuring we want to focus on mobilising private capital, creating new jobs, stimulating economic growth, improve enterprise efficiency, grow the share ownership and black participation in the mainstream economy, improve the investment in human resources and new technologies, improve competitiveness, attract foreign investment, develop capital markets, promote public private partnerships and release state investment for redeployment to other areas.
I'm sure you have all been following the recent developments with regard to the cessation of operations of Sun Air in the media. Subsequent to the announcement by SAA of their interest in acquiring 75% of Sun Air, we have received a formal request for our approval for this acquisition. We have clearly indicated that no consideration will be given to any proposal that places further burdens on the fiscus. We have also received requests from FEDUSA and representatives of Sun Air staff to allow for alternate proposals. In consideration of these proposals we are currently seeking legal opinion on how these developments impact on the original agreement and the substantive issues that it gives rise to.
Government has demonstrated its commitment to restructure Transnet through initiatives that include the introduction of a strategic equity partner in SAA and the sale of Connex. Other initiatives are currently underway. A major constraint in the restructuring of Transnet is the debt that the company has - at the end of the 98/99 financial year in March, Transnet debt stood at R27.185 billion. This debt is made up of these principal components: the core debt which constitutes the biggest slice of the debt, the pension fund debt and provisions for pensioners' post-retirements benefits.
The Pension fund debt resulted from the corporation of the then SATS to the company Transnet in 1990. At the time the pension fund for SATS employees was only around 22% funded and Transnet management decided to issue the T11 bond to ameliorate the fund's financial position to 64%. The coupon rate for the T11 bond was 16.5% and proved quite onerous for the company which had to issue more debt just to service the T11 interest payments. Management has since, through additional contributions and more debt, improved the pension fund's funding level to around 90%. This has resulted in more debt for Transnet.
In restructuring Transnet then debt is a key issue and government has decided to deal with the debt on a case by case basis i.e. as the different entities are privatised. This was the case with SAA. On corporatisation of the business unit SAA it was apparent that SAA could not sustain the debt attributable to it. Hence Transnet and Government decided to adopt a burden sharing approach. Government has directed the Transnet management to explore further options for resolving this impasse.
You are undoubtedly also aware of developments with regard to Spoornet. There is now agreement amongst all stakeholders that this process must pursued in terms of the National Framework Agreement. Labour is in the process of finalising its response to management's proposal. 'We will be engaging both stakeholders on their proposals in due course within the framework of overall government policy for social delivery of services.
With regard to ALEXKOR, you are aware that the Management Contract Agreement between Nabera and Government was signed during May 1999.The agreement entailed transfer of operational responsibility of the mining operation of Alexkor. The agreement was based on the following conditions:
All of the above should be fulfilled on 16 September 1999 for implementation of the agreement. You are also aware that an investigation team has been appointed to consider the allegations levelled by Nabera management against Alexkor board. This investigation is being led by the Department of Minerals and Energy Affairs. I am informed that the investigation is proceeding well..
I will be working in close co-operation with the Portfolio Committee on Public Enterprise and give a detailed briefing on progress with the restructuring of various entities.
With regard to progress in restructuring of other entities I wish to refer you to the following:
A. TELKOM
F. AIRPORTS COMPANY
L. SAFCOL
S. POST OFFICE
V. ABAKOR
Y. OBP
CC. SAA
GG. AUTONET
KK. ROTEK
OO. AERIAL TECHNOLOGY
TT. VIAMAX
WW. AVENTURA
August to September 1999 1%
October to December 1999 2%
F. DENEL
J. CONSOLIDATION OF INFORMATION TECHNOLOGY IN ESKOM, DATAVIA AND AERIAL TECHNOLOGIES
O. CONSOLIDATION OF TELECOMMUNICATIONS OF ESKOM AND TRANSTEL
OTHER ISSUES UNDERTAKEN
S. CONNEX
U. APRON SERVICES
W. AIRCHEFS
Z. PRODUCTION AND CHEMICAL SERVICES
CC. SITA (STATE INFORMATION TECHNOLOGY AGENCY)
HH. SABC (RADIO STATIONS)
KK. SASRIA
This in a nutshell is the progress report on the restructuring of state assets.
In conclusion In would like to emphasise that we are confident that the goals that we have set for the next five years are indeed realistic and attainable. In pursuit of this we will focus on advocating and implementing a coherent approach to restructuring and transforming state owned enterprises to ensure greater economic impact across Government
It will also be critically important to ensure that there is a systematic method of monitoring the performance of state owned enterprises and ensuring the alignment of their activities with Government policy.
We will also have to focus on developing a means to promote the business process re-engineering of state owned enterprises to restructure such enterprises internally and externally
A key area in ensuring delivery on our accelerated mandate is to develop a comprehensive approach to advocacy and promotion of the range of alternative service delivery options as a means of restructuring and transforming state owned enterprises.
This may entail that the Ministry's responsibility for restructuring and transforming state owned enterprises should not be limited to those currently designated but should extend to other such enterprises. We believe that the Ministry, as a single agency, is in a position to identify opportunities for aligning and/or integrating the activities of the diverse portfolio of state enterprises. Since many of these perform similar functions, but in different sectors, the application of business process re-engineering techniques will allow for the identification of opportunities to amalgamate similar operating entities. This is already evident in the IT sector.
The mandate as described above will allow the Ministry to play a more active role in the promotion of a variety of alternative service delivery options as a means of restructuring and transforming existing state assets. This does not remove the crucial oversight role that should be played by other government departments such the Department of Finance in monitoring the fiscal implications of such initiatives, but it will place the primary responsibility for advocacy with the Ministry of Public Enterprises.
Finally, we are fully cognisant of the challenges that the Ministry faces in fulfilling its accelerated mandate. This will require significant re-engineering and institutional restructuring to put in place a competent team of professionals to direct the process of change. It will also be necessary to draft new legislation to capture the accelerated mandate as described above. This issue in particular will be addressed with the Portfolio Committee in the immediate future.
Public Enterprises has come a long way since 1994. However, there is still much to be accomplished. President Mbeki said in his state of the nation address this year, "We are on track" now its time to get back to work.