SA has 42 privatisation deals under its belt

8th June 2001

The restructuring of South Africa's State-owned enterprises (SOEs), launched in mid-1997, had brought in R18,9-billion by January this year, with R11,9-billion – or about two-thirds – of this amount flowing into the State's coffers.

Altogether, 42 restructuring transactions were undertaken during the three-and-a-half-year period, says Department of Public Enterprises (DPE) SOE restructuring head Leslie Maasdorp.

The transactions took the form of corporatisations, management contracts, the privatisation of non-core assets, and partial and full privatisation.

Maasdorp says former SOEs, which have now been turned into entities operating in terms of the Companies Act, include Eskom, Protekon, Transwerk, Autonet, Aerial Technologies, Post Bank, Denel, Spoornet, Portnet and Petronet.

Management contracts have been awarded for Aventura, Alexcor and the SA Post Office.

Maasdorp says former SOEs which have had their non-core assets privatised are Sun Air, South African Broadcasting Corporation (SABC) Studios, Connex, Safcol, Chemical Services, Production House, Air Chefs and mobile telephone company MTN.

Telkom, South African Airways, Airports Company of South Africa (Acsa), Apron Services and Transwerk have all been partially privatised.

Full privatisation has been implemented in the case of Sasria, Connex and radio stations.

The largest contribution to the R18,9-billion raised from the restructuring of SOEs was the special dividend of R7,1-billion paid in February 2000, when Sasria was privatised, followed by the R5,6-billion realised in May 1997, when the government slashed its stake in Telkom from 100% to 70%.

Significant amounts were also realised when the government sold 6% of its stake in MTN (R2,4-billion), 20% of its stake in SAA (R1,4-billion) and 25% of its shareholding in Acsa (R1-billion).

Maasdorp says the main objectives of the restructuring exercise are to enhance competition in key sectors like telecommunications, energy, the ports and the railways; to facilitate access to, and reduce costs in, these sectors; to promote effective black economic empowerment (Bee); to attract direct foreign investment (FDI); to develop strong capital markets; to reduce public-sector borrowing; to maximise shareholder value and to obtain modern technologies and enhance the competitiveness of the SOEs.

However, Maasdorp cautioned that, if an effective regulatory framework is not put in place, the SOEs, which are largely monopolies, will simply be transformed into privately-owned monopolies, with all the negative features of entities that operate without competition.

"The objective of competition regulation and sector-specific regulation is to readdress market failures such as abuse of market power," he says.

Maasdorp says although the government is committed to the acceleration of the restructuring of SOEs, it will balance the speed at which this programme is implemented with ensuring the sustainability of the restructured enterprises.

The 'Big Four' of the restructuring programme are Telkom, Eskom, Denel and Transnet, which account for 91% of the assets owned by South Africa's SOEs and provide 5% of the country's formal jobs.

Eskom, the power utility, has been divided into regulated and unregulated activities.

"`It is envisaged that the electricity-generation assets of Eskom will be clustered as the first phase of promoting competition," he says.

The process towards competition in generation is being worked on and is expected to be finalised soon.

"Transmission is to be separated to ensure equitable access to the transmission grid," he says.

He notes that a new market structure and framework for competition in the telecommunications sector has been formulated, with debate on the second network operator (SNO) to compete against Telkom now under way.

The licensing of the new operator is expected to take place early in the new year, says Maasdorp, who adds that a clear position has yet to be taken on the nature of participation of Eskom and Transnet, the transport utility, in the SNO.

On Transnet, he says restructuring models to encourage private-sector participation in Coalink, Orex, Luxrail, Linkrail and GFB are currently being considered.

Portnet is to be divided into a ports authority and an operations arm comprising private-sector entities.

The restructuring of defence SOEs Denel Aerospace and Denel Ordnance will see strategic partnerships being formed, aimed at providing these companies with capital injections and greater access to technology and new markets.

Maasdorp says there are several challenges surrounding the restructuring programme, including fears on the part of workers and management alike, the need for a social plan to cushion the effects of job losses and for creative strategies for black economic empowerment.

There is also a challenge to gain the confidence of investors.