Thebe Mabanga

Government is considering a radical overhaul of state owned enterprises (SOE) that will see the formation of a new electricity generation company alongside Eskom, a new National Oil and Gas Company, the disposal of the South African Post Office and the SABC’s commercial stations and the possible listing of the Airports Company of South Africa.

The proposals are contained in a highly confidential document- ‘Repurposing the State Owned Enterprises as Instruments for Economic Growth’ – presented by Public Enterprises Minister Pravin Gordhan at the recent Cabinet Lekgotla held at the end of January.

The proposed radical changes also include setting up of new state owned entities in areas of renewable energy and the green economy as well as in sectors that advance the Fourth Industrial Revolution.

The secret dossier, seen by Inside Politic, also highlight the need for cabinet to urgently adopt measures aimed at eliminating corruption through consequences management that are both disciplinary and criminal where malfeasance is found.

If implemented, the reorganisation will be the most radical since SOEs were repositioned, rebranded or corporatized when South Africa became a democracy.

The presentation by Gordhan did not touch on which ministries the reorganised entities should fall under. The document contemplates a continued role for the state in Electricity and telecoms, both
spectrum and broadband, transport across port, road and rail as well as commuter rail and the entire value chain of water supply: infrastructure, bulk water and reticulation.

The document warns that the impact of corruption would erode both the efficiency and profitability of SOEs and notes that “the Security State Agency (SSA) efforts to conduct security and integrity checks and lifestyle audits required the support of shareholder minister.

It also notes that “criminal prosecution against former [government] employees and service providers needs to be speeded up.” On its approach to repurposing, the document says, “it’s time for decisive action” and calls for a refocus on mandate, stop financial and performance deterioration, address corruption and make a call on which sectors government should remain involved in and which to exit.

The first step in the process is to rationalise boards, merge SOEs and close some national and provincial ones. The tasks that are set out include reducing costs, including board fees, improve performance and promote small and medium enterprises.

The document proposes that government should continue with the decision to set up a separate transmission company in Eskom and to form a new independent state owned electricity generation company separate form Eskom.

For SAA, the plan is to retain and introduce a strategic equity partner, while SA Express and Mango can either be sold or have a Strategic Equity Partner brought in. SAA Cargo will be retained while Air Chefs can be sold to staff through a management buyout or Employee Share Ownership Scheme.

The document proposes a consolidation of the Central Energy Fund group of companies then take PetoSA, the Strategic Fuel Fund (SFF), iGas and Transnet Pipeline and form the National Oil and Gas company.

The Airports Company of South Africa (ACSA), where government has a 74,6% stake, is to be retained with the possibility of a listing once again mooted. The idea was first proposed at the formation of the National Empowerment Corporation and may have stalled around 2010, when ACSA took on a heavy debt burden to refurbish South Africa’s major airports for the 2010 FIFA World Cup.

On the SABC, which recently received a R 3,2 billion bailout, the proposal is to retain public broadcasting and exit commercial broadcasting. This would entail selling stations such as Metro FM, 5 fm and Good Hope and remain with African Language stations and SABC 1 and 2.

The SABC was found to have produced a total of 3 hours and 20 minutes of provincial content and marginalised languages across SABC 1 and 2 in a financial year due to cash challenges.

The document proposes a complete disposal of the South African Post Office. Signal carrier Sentech and Broadband Infraco will be consolidated into national Broadband Company and those entities with broadband capability such as Eskom, Prasa, Transnet and Sanral should not compete with it.

For Denel, most of the divisions are to be corporatised to bring in a strategic equity partner and transfer Denel Spacetech to the South African Space Agency, retain design and manufacture of ammunition while exiting manufacturing vehicles for the South African Army.

The document includes an assessment of 25 SOE on a range of governance criteria include the term, status and composition of the board, the status of the Chief Executive Officer and Chief Financial Officer, the existence of a shareholder compact and approved strategy, the status of 2018/2019
financials as well as audit outcomes. These are then classified as green, amber and red.

The assessed entities range from Eskom and Transnet and the Passenger Rail Agency of South Africa (PRASA), The Public Investment Corporation (PIC), Industrial Development Corporation (IDC) and Denel, South African Airways (SAA), Denel, the Airport Company of South Africa (ACSA), The South Africa Broadcasting Corporation (SABC), Sentech, Broadband Infraco and the South African Post Office among others.

Of these entities, SAA, which was placed under business rescue in December last year, was found to be the worst performing, with red on all but one criteria, the submission of the 2019 corporate plan, which is marked amber as it is submitted with revisions.

The PIC also has a number of red flags, with no permanent board and acting CEO and CFO. The PIC was also found to have an operational challenge of falling slightly short of its benchmark on the
performance of its unlisted portfolio.

The IDC has solid governance track record, with a single amber for board term and green on all other criteria but had operational challenges of its disbursement of R 11,4 billion and R 4,7 billion for black industrialists still deemed to fall short of expected standards.

The document reiterates the decision taken a few years ago, to merge the National Empowerment Fund (NEF) into the IDC as well as consolidate the Small Enterprise Funding Agency and the Small Enterprise Development Agency.

Entities that perform well includes the Trans Caledon Tunnel Authority (TCTA) which manages water supply inducing the Lesotho Highlands Water Project and is to be retained and Water Boards, which are to be rationalised as provincial entities.

The document proposes a Presidential State Owned Entities Council [PSEC] to oversee the implementation of these proposed changes and enforce common standards. The PSEC will also consider which new SOEs to set up in renewable energy and 4IR. The PSEC is to implement the documents recommendations with cabinet approval.

The presentation departs from the premise that SOE policy framework is derived from the ANC’s seminal Ready to Govern policy document, which was published in 1992.

“In the context of the growth and development strategy, the role of the state should be adjusted to the needs of the national economy in a flexible way” the document stated.

The goal of the state’s involvement has always been “…to respond to massive inequality, relieve the material hardship of the majority of the people and stimulate growth and competitiveness”

The presentation places SOEs in the context of the National Development Plan (NDP) which envisages that “by 2030, South Africa needs to be served by a set of efficient, financially sound and well governed SOEs…” In areas where government departments or private sector cannot do so
effectively.

The document strangely omits the fact that after flirting with privatisation in the late 90s and early 2000s, the ANC took a decision, announced by then public enterprises minister Alec Erwin after the 2004 elections that all privatisation would be halted and SOEs would be used to drive job creation
and development, primarily through infrastructure spending.

Nor does it touch on intervening economic policies such as the Accelerated Shared Growth Initiative of South Africa (ASGISA) which identified high input costs as a binding constraint as well as the ANC’s flirtation with the idea of a developmental state ahead of its 2007 conference.

The NDP expects the SOEs to deliver quality and reliable service at a competitive cost and acknowledges that some SOE’s challenge are structural as they do not generate enough revenue to cover their operational costs and cannot borrow their way out of trouble and will need their funding
model reviewed.

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