New York, 23 September 1999
One of the central elements of the economic policy debate in South Africa has been the role and restructuring of state-owned assets. One of the first initiatives of the Mandela government was the establishment of two important structures and processes to deal with this complex problem. One was consensus between government, labour and the state-owned enterprises to a National Framework Agreement that outlined, inter alia, common principles of restructuring, and processes of negotiation around related labour issues. Another was the creation of the Inter-Ministerial Cabinet Committee chaired by the [then] Deputy President to oversee all aspects of the processes of restructuring. These important structures ensured that during the first term of office of the democratic government the direction of restructuring and privatisation was put on a firm footing. The period up to 1999 has provided government with a solid foundation and also valuable lessons of how to improve on the delivery of our agenda. My message this morning is straightforward: we are well on the way to making sure that by the end of the first term of President Mbeki's term of office we will have completed the restructuring of state-owned enterprises within the terms we have framed for ourselves.
Let me indicate at the outset that we have adopted a range of options designed to meet the specific requirements and economically strategic importance of each and every state-owned enterprise. These include outright sale or wholesale privatisation, partial sale where the state intends to retain a certain interest, strategic equity partnerships, concessions, the employment of management contractors within certain entities, and so on. Within each of the arrangements we insist on black economic empowerment, the examination of viable employee share ownership programmes, the enhancement of the competitive environment within the sector, provisions to support the National empowerment Fund, human resource development and investment in new technology, the promotion of public-private partnerships.
Time limits me from providing you with a detailed breakdown of achievements and proposals, so let me cut to the chase and outline briefly
Our major achievements are well known. In the field of telecommunications, a 30% equity stake in Telkom was sold for R5,6 billion to SBC and Telekom Malaysia. The airline Sun Air was sold off in November 1997. A 20% stake in the Airports Company was sold to Aeroporti De Roma for R818,6m, with an option for them to purchase an additional 10%. 4,2% of the Airports Company was sold to BEE entities for R172,7m, with plans for 10% and 9% to be sold to the NEF and ESOP respectively. The proceeds of R510,4m from the sale of 6 radio stations have already been paid into the exchequer. The corporatisation of Aerial Technology was completed at the end of February 1999 and we are currently putting the final touches to the consolidation of the various information technology entities currently owned by the state. The diamond mine, Alexkor, was placed under a management contract in March this year that requires the implementation of a turnaround strategy for this valuable R229m asset with a turnover of some R190m.
Since President Mbeki assumed office, government has selected New Zealand Post International and Royal Mail (UK) as the preferred bidders for the strategic management partnership with the SA Post Office. Contract negotiations are underway. The controlling group of Swissair purchased a 20% stake in SAA for R1,4bn. Contract, sale and shareholders agreements have already been reached and we are finalising the structures of the ESOP and of the BEE transaction at the moment. The state-owned leisure facility, Aventura, has been placed under a management contract with the established Protea Hotel group that includes innovative financing and BEE components. Aventura's asset value is R121m and their turnover at the moment is in the region of R150m. The share sale agreement between Transnet and a partnership between a local and international investor for the travel agency, Connex, was signed.
The President has indicated the pending sale of the state forest group, Safcol. According to our timetables, the sale process will be completed in October. Part of the significance lies in the fact that this is the largest planned sale of state forest assets in the world to date. The total asset value of Safcol is currently R693m, with an annual turnover R569m. Again, significant ESOP, BEE and NEF arrangements are being negotiated.
Other plans include the sale of various abattoir facilities during the course of October 1999. We are ready to finalise the appointment of a management contractor for OBP, the state's veterinary laboratory. Furthermore, I must indicate that besides the rather well known and large enterprises the state owns at the moment, significant progress has also been made in the disposal of a whole range of small and even micro entities that the current government inherited from the former homelands. These include numerous farms and agricultural development programmes located in the former homeland areas such as mango farms, pineapple farms and so on. Some have already been sold or transferred to local communities and buyers in a manner that benefits the economic development of these remote areas. In monetary terms these transaction are insignificant from the point of view of the fiscus, but they are critically important for the livelihood of local communities.
The major state-owned enterprises to undergo restructuring include the fourth largest electricity utility in the world, Eskom, that provides the bulk of power generation on the continent at rates that rank amongst the cheapest in the world. Eskom's asset value is in the region of R70 billion, with a turnover of just over R21 billion. Discussions are underway to identify the best way strategy for the restructuring of the generation, transmission and supply components of Eskom. Already the commercial elements of Eskom's activities have been rationalised and brought under the umbrella of Eskom Enterprises.
Transnet, the state's multifaceted transport entity with interest and activities that span everything from air, road, rail, port and harbour, freight and passenger services, has an asset value of some R43 billion with an increasing turnover that reached R22 billion in the last financial year. There are a large number of components within Transnet and the restructuring process is at different stages of completion. Priorities are in the area of Portnet, the rail network Spoornet, and the energy sector, Petronet. We are confident that final proposals concerning all of these entities will shortly be placed before government. This will mark a significant step forward and provide us with the opportunity to examine a wide number of options to attract international investment.
The state's arms manufacturer, Denel, is also undergoing significant transformation and restructuring at the moment. Recently the Board approved the sale of various non-core units that involve a number of local and foreign companies and partners. Significant planning has been made in the areas of ordnance, aviation and aerospace, as well as the commercial side of the business. Denel's total asset value is in the region of R4 billion, with a turnover of some R3,2 billion. Government's recent announcement of the acquisition of new systems for the SANDF will boost Denel's income, its technological redevelopment and will significantly impact on the speed of its own restructuring programme. By their very nature, the defence-related industries stand to benefit largely from the successful involvement of international strategic equity partnerships. Already we are moving significantly in the aerospace arena.
Eskom is confident that its mission critical systems have been Y2K ready since the end of June 1999. Denel's organisational groups will be compliant by the end of this month. Transnet, likewise, has made excellent progress. The most recent report I received indicated that they had achieved 97% success on all mission critical systems, including embedded systems. In short SOE's are ready for 2000.
It is now common cause that the restructuring and privatisation of state-owned enterprises is neither a quick fix nor a simple, straightforward exercise. Economic development and cost needs to be balanced against and integrated with social and, sometimes, political effects and considerations. This is not unique to South Africa. In this regard government has ensured that we establish the requisite policy framework, its legislative expression, and see to the necessary adjustment to the regulatory framework to ensure both competitiveness and coherence to the principles of fair play. At the same time, my new head of department is hard at work putting in place a revamped structure that will ensure that government has an adequate and professional policy-making, monitoring and evaluation capacity that does not rely overwhelmingly on outside sources. Necessary adjustments also need to be put in place concerning corporate governance, and plans to implement a Corporate Governance Protocol for State-Owned Enterprises are well advanced.
SOEs continue to function and operate within South Africa. As we undergo the restructuring process, we are acutely aware that what we are doing day by day is putting the necessary blocks in place for further development. Whilst many of the entities can be dealt with relatively easily and rapidly, a number of them, particularly the large state corporations such as Transnet, Eskom, and Denel, require special attention. There are a number of constraints that prevent over-hasty implementation, most of which have to do with issues of the debt burden or pension fund issues and so on that are direct hangovers from the previous government's self-interested approach to state assets prior to 1994.
Furthermore, these three entities, Transnet, Eskom and Denel, along with our telecommunications and information technology instruments, play an important regional, continental and indeed international role. As such they operate in many ways as extensions of South Africa's own foreign policy. This in itself brings certain sensitivities into focus that require our close attention.
These entities also employ larger numbers of people, a situation that in the South African context where employment and wealth creation were once strictly defined as part of a racist agenda, makes questions of retrenchment particularly important. Government's adoption of a consolidated Social Plan administered by the Department of Labour and adopted in terms of the National Framework Agreement I mentioned at the outset is a necessary element of our restructuring process.
In conclusion, let me highlight one interesting element. The examples of restructuring I have outlined refer to a number of instances where international partners have successfully integrated themselves into our programmes. It is clear that we do not have a geographical bias when we choose partners. We assess each bidding process acutely and carefully. We select those who show clearly and convincingly that interaction with them will provide us with the best solutions for South Africa's interests. We recognise just as clearly that partnership is not, nor indeed should it be, based on charity. These are business decisions, based on solid business principles, and involve hard-nosed business negotiations within the parameters of policy. We are more than ready to interact on that basis with business corporations everywhere. We are very enthusiastic to interact at a far greater capacity than we have done so to date with the United States business community. In the area of state-owned enterprise restructuring and the opportunities our programmes offer, we are more than keen to include your expertise and experience in the development of our own success in South Africa.