1 June 2001
Madam Speaker,
Honourable members of the National Assembly
and invited guests,
One of South Africa's biggest challenges is to attain sustainable economic growth and development. We have achieved macro-economic stability through a variety of economic, fiscal and monetary policies and initiatives but we have not yet achieved the growth rates required for sustainable development. Current indicators aside, it is clear that we need a range of initiatives to take our GDP growth beyond 3 percent per annum.
Let me address a number of issues head on, and hopefully clear the air once and for all about government's definition of its mandate and our approach to its implementation. Thereafter I will provide you with factual evidence of our work and of the immediate, practical plans we have for the accelerated agenda we have in place.
First of all, let's agree on the terms and words we use to describe what it is we are about. Restructuring is the generic term we use to describe the basket of strategies we use to ensure that public enterprises in South Africa are efficient, effective, and powerful engines of socio-economic development. That basket includes initiatives that have specific characteristics. There are concessions that involve ways of outsourcing management, maintenance, or the general function of entities over specified time periods. There is the consolidation of common activities across public enterprises. And there are privatization initiatives that cover various mixes of equity share arrangements, and/or the wholesale disposal of assets. These changes to the institutional environment of SOEs are in turn underpinned by the negotiation of shareholder compacts that clearly delineate the respective relationships between each entity's executive management, its Board of Directors, and government as the shareholder; transformation within each entity and adjustments to the procurement and acquisition policies and practices of the SOEs; and social plan agreements between each entity and labour. Shareholder compacts will be reassessed when outside bodies acquire equity. The transformation and procurement adjustments are designed to promote economic empowerment; whilst the social plans are designed to accommodate the risks workers are likely to face if they are retrenched or undergo retraining or reskilling programmes.
In today's circumstances, with widespread poverty and poor infrastructure still holding us back, it would be highly irresponsible for the current government to engage in a firesale of state assets. This is particularly the case at a time when institutions like the IMF, the World Bank, international advisers and others, have assessed developments since the 1980s in Africa in particular, and the 1990s in former Eastern Europe as well and found the results wanting. Our policy framework titled "An Accelerated Agenda Towards the Restructuring of State Owned Enterprises" is located within this conceptual framework. That there must be transition is not at issue. The pace of that transition is critical. That it will cause deep and probably irreversible changes in the nature of the modern state and its relationship to economic participation is also not in doubt. But that is what societies do. They change, reorganize, and develop. But we have the choice to direct those changes. We are not victims or prisoners of globalisation, we are active participants in a new world. That is the challenge that we face, and we intend being at the forefront of those changes so that we are not left stranded at the high water mark when the tide of opportunity has ebbed.
As the South African Government, we have recognised the unambiguous need for the state to play a developmental role in South Africa to deal with the legacies of apartheid, widespread poverty and unemployment. SOEs in South Africa represent massive financial, investment, labour, technology and infrastructure resources. Restructuring aims to maximise the contribution that these state assets can make to development through the integration of public, private and social capital and expertise. SOEs will play a critical role in our endeavour to enhance our manufacturing competitiveness. They dominate the energy, transport and telecommunications sectors, sectors that are responsible for a significant percentage of input costs to potential high growth industries like tourism, manufacturing, agriculture and other export related industries. By ensuring that our input sectors are efficient and offer high quality services, we can lower the costs and improve the services that they offer to high potential growth industries. In addition, some of the SOEs also operate in high growth sectors, like telecommunications and information technology.
It is perhaps of interest to the House that our approach to managed liberalization, adoption of sound corporate governance, strategies for domestic empowerment through partnership and joint ventures and a concrete social plan, has met with considerable interest wherever we have had the opportunity to discuss the restructuring policy with other governments in Africa in particular. So, for example, one element of the Algeria-South Africa Binational Commission is an agreement to provide assistance in the form of training, management expertise and constant comparison of experiences in the arena of state enterprise reform. So too, our views expressed through Eskom Enterprises projects in Uganda have met with the approval of the World Bank as viable alternatives in those countries. This is particularly interesting in the light of the disaster of the shock therapy approach in the Senegalese energy sector. Of critical importance is the recognition that the dramatic approach only seems to work in those economies that have sufficient institutional and financial reserves, tradition, and capacity to absorb the shock. Otherwise, they crumble with massive social implications and destruction of the type we have seen particularly in parts of central Europe and Russia.
I will now focus on progress that has been made in the implementation of our accelerated agenda for the restructuring of state owned enterprises in South Africa. At the beginning of last year my department circulated a business plan, indicating a programme of the various restructuring initiatives that will be undertaken over the next three years. I am happy to report that the Department has exceeded the interim projected milestones that have been set for the year under review in all the major sectors.
Eskom is one of the most efficient and lowest cost producers of energy in the world, and our low cost of energy and the reliability of supply by Eskom has enabled us to attract large energy intensive manufacturing plants to South Africa, like the Hillside Smelter. Eskom also plays a critical developmental role ensuring that energy is accessible to the majority of South African citizens.
The introduction of competition in the South African energy-generating sector and it will serve as a catalyst for further efficiency gains, which ultimately will pass through to the consumers. Another factor worthy of note is that Eskom's expertise primarily focuses on coal fired generators, and should Eskom aspire to be a global power generator, it would have to develop further expertise in hydro power and power generation from gas.
Government favours a competitive generating model with Eskom retaining a dominant domestic generating capability after restructuring. On the basis of our current growth trajectory, additional power will be required in 2007, a situation that provides an ideal opportunity to introduce new power producers into the South African energy generation market in around 2003. Eskom's investment in generation assets beyond our borders would accompany a reduction of Eskom's domestic generation capability. This three-pronged strategy is sufficient to stimulate competition in generation domestically, whilst not undermining Eskom's vision to be a global energy utility.
During the public hearings on the Eskom Conversion Bill, concerns were expressed from certain quarters that the restructuring of Eskom would seriously compromise Eskom's developmental role. The argument presupposes that we intend following an irresponsible trajectory for the restructuring of Eskom. This is clearly incorrect, and I wish to assure the South African public central to our plans for Eskom is the need for it to continue to fulfil its developmental role in South Africa.
The promulgation of the Transnet Pension Fund Amendment Act on the 1st of November 2000 has helped kill the albatross of debt that has held back Transnet's effective restructuring. A revised actuarial valuation of the pension fund and an equity bond swap with the Public Investment Commissioners has enabled Transnet to retire R7,4 billion of T11 Bonds. These T11 Bonds were acquired under unfavourable conditions, and were accompanied by covenants that meant in practice that whilst the State owned Transnet on paper, any significant transformation or restructuring initiatives required the bond holders' approval. Besides that, interest payments on these bonds were approximately R1,5 billion per annum, which placed severe constraints on Transnet's ability to recapitalise the business. The retirement of the T11 bonds paves the way for increased infrastructural investments by Transnet, and an improvement of its debt equity ratio from 74% to 54% to bring it in line with its global peers. We have also normalised the benefits that accrue to both black and white pensioners and to the widows of black employees. To those detractors who have expressed concerned about the slow pace of Transnet's restructuring, our response is that we have adequately demonstrated our resolve to restructure Transnet by concluding a highly complex transaction in nine months. The resolution of the pension fund problem also enables us to restructure the various business units in Transnet without pursuing the complex debt burden sharing exercise that was adopted when SAA was initially brought to market.
Internal transformation at Spoornet is well underway. A team of rail specialists were brought in to assist the new management team in identifying the most efficient mode of internal operations, and we are already seeing the benefits of this internal efficiency exercise. Government accepts State participation in the general freight business and the mainline passenger services. We are aware of the employment issues in Spoornet and are in discussion with organised labour and management to accommodate the concerns of everyone.
Our port systems represent a critical component in our endeavour to enhance our industrial competitiveness. Historically, our wharfage charges and general port inefficiencies have resulted in a reduced traffic of freight through our ports, thereby inhibiting the development of back-of-port manufacturing sectors and logistics entities. We have embarked on a multi-pronged strategy to make sure that our ports contribute to our competitiveness. Portnet will be corporatised into a separate port authority and port operations component. This separation and the respective roles and functions will be clearly defined in the Ports Policy to be released shortly by the Department of Transport. In the interim, we have already commenced with the various financial and legal exercises aimed at the separate incorporations. A new and more competitive tariff regime will be unveiled in the fourth quarter of this year to ensure that our rates are on par with our competitors. The concessioning of some of the ports operations to the private sector will begin in the first quarter of next year.
The turn-around of South African Airways is underway. Considerable progress has been made in improving the financial situation at SAA and fleet modernisation remains a critical challenge to the airline. We are looking closely at the strategic line SAA's management is taking, given the concerns that have been raised about the sustainability of some of the decisions taken before the change in leadership in SAA. As you are aware, the SAirGroup has opted to retain their 20% shareholding in SAA, despite the financial woes that they find themselves in. This is clearly a vote of confidence in SAA and the South African economy in general. At this stage, we are planning to prepare SAA for an IPO in 2002. Let me refer Members to the statement I released yesterday concerning Mr Coleman Andrews. I am awaiting a final report on the issue from Transnet and further action will be determined then. Corporate governance issues are central to this question and I am not going to pre-empt any of the findings.
The Telkom IPO represents the first primary placement by Government on the Johannesburg Stock Exchange, and will be the single largest telecoms listing domestically. We have made significant progress on this project. Legislative certainty via amendments to the Telecommunications Act will be tabled by the Department of Communications in June 2001. We have also been advised by ICASA that appropriate regulations will follow shortly thereafter. Considerable work has been done at a company level to prepare for the listing, and negotiations are well advanced with Thintana, Telkom's SEP. We are constantly monitoring the performance of telecommunications stocks globally.
In April 2001 we also disposed of 3% of Telkom to BEE grouping Ucingo for nearly R565m after a competitive bidding process.
We are also in the process of defining the most appropriate manner of offering Eskom and Transtel's telecommunications infrastructure for utilisation by the Second National Operator. Eskom and Transnet bring substantial benefits to the SNO, including their unrivalled infrastructure reach, access to customers and distribution channels. Our decision to bring these SOE capabilities to the SNO is not based on some ideological indulgence on our part, but rather on sound business principles that will ensure a reduction in cost, both in terms of infrastructure and time for the SNO, and to roll out appropriate infrastructure in order to compete effectively with Telkom within the shortest possible time.
South Africa's defence related industries operate within a context of increasing global consolidation. Denel is a repository of cutting edge technology and intellectual capital that has been demonstrated by the global acclaim that some of its products have received. To retain this critical skills base and to grow Denel as a business, we have secured a greater penetration of global markets. Thus, we are finalising a partnering relationship with BAE Systems at a Denel Aerospace level and other partnerships at a business unit level, such as the partnering of Denel Airmotive with Turbomeca Snecma. These partnerships are scheduled for finalisation in August this year. Not only are they intended to provide us with greater access to global markets, but they are also constructed to ensure that our partners establish some of their production lines domestically, thereby enhancing the local job creation potential of this sector.
After a lengthy and complex exercise that involved the integration of the DWAF and Safcol forests, the accommodation of community interests and the protection of environmental sensitive areas, we are happy to advise that the Kwa-Zulu Natal package has been finalised for disposal to Siyaqubuka Consortium for R100m. The contracts and sale agreements were signed on 22 May 2001. Our ability to reach finality on the Kwa-Zulu Natal package and the experience gained from this complex exercise has enabled us to rapidly move forward with the sale processes of the other packages, including the Northern Province and Mpumalanga Package.
Lest we forget, part of our mandate is to act as the responsible shareholder of the entities that we have an interest in. Government and my department are totally committed to the advocacy, promotion, implementation and development of a culture of sound corporate governance within SOEs. To demonstrate this commitment we have developed mechanisms that are geared towards an improved corporate governance environment in the SOEs. The shareholder compacts, for example, ascertain the degree of independence of the SOEs within their clearly defined mandates, accounting and reporting in line with the PFMA, corporate governance issues that relate to the remuneration of board members, and the disclosure of remuneration to executives, and so on. Further, we are participants in the King Commission and have endeavoured to ensure that our state owned enterprises subscribe to the values that are expected of responsible corporate citizens in South Africa. At a recent corporate governance conference in Kenya, Nairobi, attended by representatives from both the developing and developed world, the South African Government was recognised as a leading global exponent in the promotion of sound corporate governance of SOEs.
I have outlined a programme that amounts to nothing less than a radical shake-up of the SOE environment in South Africa. We believe that it contains fundamental elements that will assist in driving our economy to sustainable growth and development. At the same time I am also conscious of the insecurity, doubt and fear that exists in the breasts of many of our workers and managers in the SOEs. The welfare consequences of restructuring are uppermost in government's mind, which is why we have reaffirmed the NFA with labour and have ensured that management signs off on the agreement as well. It is also the basis for the development of social security safety nets to provide assistance to those who will be retrenched as a result of the restructuring initiatives. We are in agreement with the leadership of the trade unions, and this point is consistently assessed at all our engagements, that there will be job losses in some cases, but it is our solemn undertaking that these must be kept to a minimum, and that every effort must be made to ensure that people are not left in the desert of unemployment. We believe that any initial pain will be relieved by the concrete benefits that will flow from the investment we make in the restructuring effort. I want specifically to say to all SOE workers and their dependents: Sifuna ukuninikeza isiqiniseko sokuthi uHulumeni wenu uziqondisisa kahle izidingo zenu. Umnyango wami uphezu komkhankaso wokuhlela kabusha izimboni zikaHulumeni ukuze kudaleke amathuba emisebenzi, kusimame nomnotho wezwe. Phezu kwalokhu uMnyango wami ubhekeke ukuthi wenze konke okusemandleni ngokulandela izinhlelo ezibekwe uHulumeni wenu, kanye namaqhinga okugwema ukuhlukumezeka kwabaSebenzi, imindeni yabo kanye neMiphakathi abayakhele, ngaphansi kohlelo olubizwa ngokuthi I - Social Plan.
Sihlezi sibonisana nabaholi beziNyunyana ngokwezimiso zohlaka lweNFA, ngezindaba ezithintana nokuhlelwa kabusha kwezimboni zikaHulumeni. Nakuba kuke kwenzeke singaboni ngasolinye ngaso sonke isikhathi. Okubalulekile, nokumele singakukhohlwa neze ukuthi, loHulumeni wenu uyohlala njalo usebenzela ukufeza izinhloso nezidingo zabahlwempu nabantulayo kanjalo nokwakha isisekelo sempilo esimeme nekusasa eliqhakazile labantwana bethu. [we want to assure you that this government, your government, is sensitive to your needs. We want to restructure SOEs to create new, permament, long-term jobs for all South Africans. In situations beyond our control where job losses are inevitable, such situations will be treated extremely sensitively. We are in ongoing discussions with your leaders und the auspices of the NFA. We may not agree on everything. But remember this Government, your government, will always act in the interest of the poor and marginalized, to build better lives for our children.]
Government has defined the development of our economy as its major task. State owned enterprises have a vital role to play in the development of our economy. In certain instances SOEs dominate the sectors of the economy in which they operate. Their efficiency and performance is therefore closely related to the country's economic performance. Solid and profitable relations with domestic and international investors drawn from the private sector can only be built within the context of a clear regulatory framework, increased competition, accountability and transparency. We believe that our Policy Framework has provided the investor community, the SOEs and stakeholders with a clear and transparent vision and set of procedures against which the whole process can be monitored, judged and evaluated. Our performance over the last year in implementing our policy, clearly demonstrates our commitment to ensure that the restructuring of state owned enterprises is done responsibly and to the benefit of all South Africans.