[ Home ] [ Speeches & statements ]

Members of the press and electronic media, the diplomatic corps, ladies and gentlemen, it gives me great pleasure to use this opportunity to bring you up to speed with the Government's restructuring programme and associated developments.

At the outset I would like to clarify an important matter which has generated media comment and interest in the broader business community concerning the pace of the privatisation programme. It is being said that privatisation is taking place too slowly in a haphazard manner and unfair comparisons are being made between the privatisation programme of the state owned enterprises which resort under Public Enterprises and those resorting under other Ministries.

Such comments are superficial and misleading. I always say that you would not compare apples and pears, and you cannot compare the pace of privatisation in South Africa with what was accomplished in the UK or even South America. Indeed, the UK has been at it for 15 years and they are still busy with the railways and the Royal Mail. By comparison South Africa has been engaged in consulting as many stakeholders as possible, achieving consensus over the goals and now working, sectorally, on consensus over the approach. It takes time, patience and the development of mutual respect and trust between many varied and even conflicting interest groups, but the process is running and consensus is being achieved. Sun Air, Aventura, Telkom and the Airports Company have been restructured or are in the completion stage thereof. One more privatisation is on the cards for this year - the forestry company SAFCOL - which should be sold off by December this year.

As you comment on the pace of privatisation and make all sorts of comparisons, the firms under the Ministry for Public Enterprises have been carrying enormous debt burdens as well as serious inherent structural challenges, and it is one of the critical tasks of the Ministry for Public Enterprises to address and rectify these issues, so as to enhance the market value of these companies before exposing them to the assessment of international analysts and investment experts.

The Government is only too well aware of the demands to expedite the restructuring process and in this regard a team of four key people has been recruited from public corporations to drive the restructuring process in an approach which would lead to the enhancement of the Directorate: Restructuring within the Ministry for Public Enterprises.

On the subject of Denel, which is a massive umbrella group of twenty diverse companies, some degree of rationalisation is necessary. The firm could perhaps be regrouped into five subsidiaries, comprising aviation, artillery, civilian products, IT and property. Denel Aviation and the IT division are already discussion subjects for privatisation. Denel's aviation maintenance subsidiary could be merged with SAA. Government has agreed to fast track Ariel's privatisation in conjunction with the establishment of a new state owned information technology company known as SITA.

Denel's Master Plan for Restructuring and Privatisation was compiled at the request of the Minister by Denel management. A Ministerial sub-committee assisted by HSBC has been set up to review the Management's Master Plan with the objective of clarifying Government's vision for Denel and the road ahead in terms of restructuring options.

The aerospace and defence industry in our country is a high technology strategic national asset whose survival and growth goes to the heart of our strategic independence as a nation. It is an industry at the forefront of technology know how and the sponsor of many high technology skills and capabilities that flow down through our economy.

My department and I, along with my Cabinet Colleagues, have convened a focused team to look at these issues. We must first of all not leap blindfolded into an industry privatisation process believing that we can secure a successful future in this one simple step. The issues are complex and we must act in concert with the national industry as a whole and internationally and in the country's interests as a whole.

We must understand the true competencies of our industry and those elements that are critical to its future role in our democracy.

The Globalisation and consolidation of both demand and supply implies that there will not be a sustainable, attractive future role for broad-based, small, national aerospace and defence companies. Given this fundamental assumption, Denel will need to focus its resources on activities where demand is robust and in which it can utilise its areas of strength.

In this context, when dealing with the privatisation of Denel, we must address several key questions about its future:

WHAT ROLE IN THE GLOBAL INDUSTRY?

* Supplier of high value niche products?
* Specialised modifier of aerospace products?
* Low-cost supplier of parts and services to large international players?
* Local skill-base and off-set contractor?

WHAT STRATEGIC ACTIONS TO ENSURE SUCCESS

* Consolidation of skill-base into one entity.
* Therefore, selecting optimum set of international partners.

WHAT MANAGEMENT ACTIONS TO RE-FOCUS LEADERSHIP?

* Re-aligning management focus for the new competitive environment.
* Development of a shared vision.
* Introduction of new management skills, where appropriate.

WHAT OPERATIONS/ACTIONS TO ENSURE EFFICIENCY?

* What steps are necessary to secure Denel's financial future and avoid the disaster scenarios experienced by some smaller nations with high cost operations in this industry.
* We must look at its structure and decide whether it must be changed if we are to secure its growth and development.
* We must carefully consider our alliances, both in a corporate sense and at Government to Government level.

My comments on the remaining members of the Public Enterprises stable are as follows:

TRANSNET

At issue here is still the question of the pension fund debt.

The Ministerial Sub-Committee met and agreed to look at a phased approach to the removal of the Pension Fund debt from Transnet's balance sheet, under which decisions on allocating the burden of all debt and Pension Fund/Medical Aid liabilities between the Government, Transnet and the restructured businesses would be taken at the time of external restructuring of those businesses. It is to be hoped that finality on the issue will be reached at the IMCC of the 13th.

Divisions have all started restructuring with corporatisation as the initial step.

SOUTH AFRICAN AIRWAYS

Corporatisation has been delayed in order to resolve certain technical issues arising from Transnet's debt agreements with banks and bond holders. Meanwhile work on a revised business plan and draft opening balance sheet is due to be completed on 18th August. The revised business plan will be presented to the divisional board on 19th August. Shortly following this it is anticipated that a capital structure for the new business, taking into account future capital expenditure, will be proposed.

AUTONET

Corporatisation preparations by accountants, lawyers and working groups and is proceeding as scheduled. A position paper on the restructuring of Autonet has been produced which will be tabled at the IMCC after preliminary discussions with labour.

SAFCOL

The restructuring/privatisation of SAFCOL and DWAF forests must form part of the wider forestry policy. It is therefore essential that the Nation's plantation resources are developed in a sustainable manner and that dependent industries (downstream activities, such as furniture businesses) are stimulated to produce more efficiently and to generate increased revenue.

The objectives that our Government want to achieve in this privatisation are, just to list a few:

* to help provide a framework for increasing investment and export opportunities and for the consequent development in both levels and quality of employment;
* to place particular emphasis on the need to create greater value-added products in the sector within South Africa, which in turn means emphasis on the development of downstream activities (processing and manufacturing based on wood as a raw material);
* to further the Government's wider policies on such matters as empowerment, regional development, human resource development and corporate governance; and
* to promote sustainable rural development in the context of sound environmental and resource management policies.

At its meeting on November 13th, IMCC agreed a strategy for restructuring SAFCOL based on the following points:

* Government, as you know, will retain ownership of the land and grant long term rights to private sector investors to grow, harvest, sell and process timber.
* Additional advisers for the restructuring of forestry assets have been appointed. Edward Nathan in conjunction with Ledwaba Mazwai are the legal advisers, Ernst & Young/Manase & Associates are the accountants and Jaakko Pöyry has been appointed as the legal experts. All these advisers have commenced with their work.
* The transaction advisors have tabled a timetable which indicates that the preferred bidder will be selected by the end of December 1998. The work currently being undertaken by Jaakko Pöyry will give an indication of which of the DWAF assets will be ready for inclusion with SAFCOL for `sale' later this year. Jaakko Pöyry will table their report in mid-August.
* The Department of Land Affairs (DLA) has proposed that a vehicle should be formed that will hold land on behalf of Government and will enter into leases with investors. However, indications are that this vehicle, known as the Land Management Agency (LMA), may not be set up in time to accommodate and facilitate the transaction timetable as it stands. Transaction advisors are reviewing the proposed LMA and will advise on the policy that needs to be adopted.
* DWAF land and parts of SAFCOL land have not been surveyed. These surveys need to be complete by the end of this year to enable successful bidder(s) to have secure leases with the LMA. Lack of this information will introduce uncertainty of tenure for investors who will then require that Government give warranties against loss of rights.

ALEXKOR

The main points of the accepted restructuring strategy are:

* Government will retain ownership of Alexkor for an interim period until the value of the company becomes clearer; it may however allow the community to take a small shareholding;
* The State will continue to own the mineral rights and will negotiate mining rights with Alexkor.
* Government will hold a competitive tender for mining companies to bid for a competitive contract to run Alexkor for an interim period.
* At the end of this the mining company will be able to exercise an option to achieve a significant shareholding in Alexkor and will charge a management fee in the interim.
* Hatch Africa (Pty) Limited has been appointed the Government's technical adviser.

The following are some of the tasks in Hatch's mandate:-

* perform a technical audit;
* assess and review the contract with Dorstland for mining dumps;
* interact and assist on issues of security;
* interim report has been presented to the Minister for Public Enterprises and that of Minerals and Energy.

A sub-committee ("the committee") dealing with non-mining activities has been constituted. The committee comprises representatives from Central Government, Provincial Government, Committee, Labour and Management.

The committee will confine itself to the following issues:

- community equity participation;
- development of post-mining activities;
- land claims;
- restructuring of non-mining activities.

The Ministry for Public Enterprises with the assistance of Hatch Africa is currently reviewing various contracts awarded by management without proper tender procedures and a full report on this will be tabled in due course.

POST OFFICE

A restructuring strategy has been adopted which proposes that the Post Office enter a strategic management partnership and a number of road shows have already been undertaken by Minister Naidoo and his team. In three years the Post Office must break even. A key mandate is the universal service obligation. The Post Bank must also be restructured to enhance efficiency.

AVENTURA

On Friday, 29th May 1998, Government announced that Kopano Ke Matla had been selected as the preferred bidder.

The preferred bidder has reached an agreement with the land claimants as to the resolution of land claims. The preferred bidder has agreed that:
Aventura will transfer land of the affected resorts to a vehicle formed for the benefit of land claimants.
Aventura will then enter into a ninety-nine year lease agreement.

The next step is to initiate the Parliamentary process in compliance with the Overvaal Resort Act which requires the Minister for Public Enterprises to effect the sale in conjunction with the Minister of Finance and the approval by resolution of Parliament.

Upon approval by resolution of Parliament the purchase and sale agreement can be signed and the deal finalised. The land court order ratifying the agreement reached by the bidder and land claimants will only occur after the signing of the purchase agreement.

It is anticipated that the implementation date will be 1st September 1998.

AIRPORTS COMPANY

Discussions on the ESOP structure are continuing. Various options have been advanced and the debate is focusing on the issue of direct worker participation on the board, the structuring of the ESOP and an equal parity basis for employees or incentive based performance beyond the R10 000 share limit per employee.

The offer of 10% of the equity in the Airports Company to black economic
consortia at the same price per share as paid by Aeroporti de Roma, is complete and only 4,2 per cent of shares were taken up. The Government has been left with 5,8 per cent and is deliberating on this.

ABAKOR

The company is having serious cash-flow problems and the shortfall amounts to R36 million. Labour has agreed to the proposed rescue solution by management which involves, amongst others, the following:

- the sale of Bloemfontein Abattoir;
- sale of Kimberley Abattoir;
- debt equity swop with the Meat Board; and
- any form of debt restructuring of Abakor.

PROCUREMENT POLICY

It is to be recommended that the parastatals are to compact with Government on their job creation and black economic empowerment initiatives. Part of core business requirements can be sourced from the historically disadvantaged through appropriately structured black empowered schemes. Lifetime/longterm contracts with traditional suppliers are to be reviewed. In a new cross-border and international business development initiative joint ventures with emerging business are to be established. Transparency in parastatal tendering and procurement processes, procedures and structures is to be a requirement. Deliberate proactive programmes around the core business are to be established by parastatals to ensure job creation and skills transfer. Labour is to be invited to invest in parastatals' cross-border and international investment initiatives. The National Empowerment Fund is to be used as a potential source of establishing new businesses and jobs through the Employee Ownership Schemes (ESOPs), inter alia. Sub-contracting as part of service provision to emerging business by parastatals is to be involved in the Spatial Development Initiatives. Possible incentives could be introduced for progressive parastatals, e.g. tax rebates, etc. The restructuring process itself, through appropriate and innovative interventions can be a source of large scale sustainable job creation.

<EOD>