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State Owned Enterprises (SOEs) in South Africa continue to play a critical role in the current phase of economic restructuring where the focus shifts from macro economic stability to the development of a sustainable growth trajectory.

Cabinet has already agreed to focus on specific sectors of the economy that will enable us to interact meaningfully in a globalising environment. These growth sectors without exception depend on reliable, accessible and cost efficient infrastructure relating to energy, transport, and telecommunications. SOEs are dominant role players in these key sectors of our economy. It is envisaged that their accelerated restructuring will contribute significantly to improving the overall competitiveness of our economy both from a macro and a micro economic perspective. Clearly, restructured SOEs will play a significant developmental role in South African society via the integration of public, private and social capital and expertise. SOEs currently and in the future will also play a significant role in integrating the economies in Southern Africa, in particular within the SADC region, by providing an integrated platform for transport, communications and energy.

With the finalisation of our Policy Framework for the Restructuring of SOEs in August 1999, the focus this year will be on the accelerated implementation of the restructuring of the four major SOEs. Already considerable progress has been made, and restructuring plans have been approved by Cabinet to ensure that the major parts of our restructuring initiatives are complete by 2004.

Transport:

In the transport sector, the restructuring of Transnet has already started to yield results with Transnet declaring a net profit of R780 million for the first time in many years, despite us inheriting a liability of approximately R23bn in 1994. The Transnet Pension Fund has been reconfigured enabling us to retire approximately R8.5bn of Transnet debt, thereby creating the opportunity for Transnet to invest in critical public infrastructure that had hitherto been under-capitalised as a result of the large debt burden borne by Transnet.

The restructuring of Portnet in now underway and will see the separation of Portnet into a port development agency, port operations and a regulatory authority. The restructuring of Portnet is envisaged to result in improved competitiveness of our ports, a greater thru-put and the stimulation of back- of port logistics, thereby ensuring that we play a more significant role in south-south trade relations, than we have up until now. The ports policy will be finalised during this quarter of 2001 and a new and competitive ports tariffing regime will be announced by December 2001. An increased investment of R3, 5 billion over a three-year period is envisaged in port infrastructure in Richards Bay, Durban and Coega. The concessioning of certain elements of port operations would also commence this year.

Considerable progress has also been made in the restructuring of Spoornet. Cabinet has also resolved to focus on a strategy, which shifts freight from road to rail to minimise the considerable financial burden that is being imposed on us for the ongoing maintenance of roads in South Africa. During the current year, focused attention would be given to enhancing the efficiency of our general freight operations and integrating it with our port operations thereby providing the backbone for a seamless logistic system which is intended to reduce, both in terms of cost and time, the movement of freight from point of manufacture to the end user. Whilst the restructuring model for Spoornet is currently being finalised it is envisaged that private sector participation would be brought in to our specialised primary commodity lines, Orex and Coallink within the next three years.

South African Airways has experienced a successful turn-around, and our relationship with the SAirGroup (Swissair) has seen considerable benefits accrue to both parties. Despite the current strategic review currently underway in SAirGroup, the group has provided us with a tremendous boost of confidence to our economy, by indicating their intention to retain their investment in SAA and to give serious consideration to extending that investment. At this stage we envisaged pursuing an IPO for SAA in 2002.

Telecommunications:

In the telecommunications arena, Government has committed to a process of managed liberalisation within the sector, to reduce costs, improve efficiency and competitiveness and encourage new entrants into the sector. Government is acutely aware of the urgent need to bridge the digital divide, and the restructuring of the telecommunications sector provides us with an important element of moving into knowledge based economy. Following the recent stakeholder colloquium, the finalisation of telecommunications policy is on schedule for the first quarter of 2001. The initial public offering of Telkom shares is on track for this year, subject to market conditions.

SOEs, in particular, Transnet and Eskom, are engaging competitively in the African telecommunications market. Both Transnet and Eskom are expected to playing an important role during the issuing of licenses to other national telecommunications operators in South Africa.

On the information technology front, we have seen the merging of IT capabilities of Denel, Transnet and Eskom into single entity called arivia.kom, which started trading on the 8th of January 2001. This company is now the 4th largest IT company in SA with an expected turnover for this year in excess of R1 billion. Arivia.kom is well positioned to be a dominant player in the IT sector not only in South Africa but also in the Southern Hemisphere.

Energy:

Considerable progress has been made in the restructuring of Eskom. This year will see the tabling of legislation - the Eskom Conversion Bill -, which will see Eskom incorporated as a limited liability company. In preparation for the need for additional energy in 2007, we are currently developing the regulatory framework for the introduction of independent power producers into the South African energy market. Noting that Eskom is one of the most efficient and lowest cost producers of energy in the world, we will strive to ensure that Eskom expands its power generating capability on the African continent, whilst simultaneously encouraging and promoting competition within our domestic market.

Defence:

The defence sector has globally served as a springboard for the development of high value and high technology manufacturing entities. In South Africa, the restructuring of Denel is intended to ensure that we remain competitive in certain niche sectors, whilst also promoting diversification into the high value civilian and commercial product range. Noting the consolidation of the defence industry globally, our proposed partnership with BAE Systems, which is scheduled for finalisation by July of this year, is intended to provide greater access to global markets, increased technology interchanges and increased domestic manufacturing capability.

Government is conscious of the concerns expressed by our social partners, especially organised labour on potential job losses that may result from restructuring of SOEs. To address these concerns, our restructuring program consciously focuses, at the outset, on sectors that have the potential to create sustainable jobs such as ports, telecommunications, and energy generation and distribution. Government has also impressed upon SOEs to engage on re-skilling exercises to ensure that, where appropriate, workers are in a position to adapt to the changing work environment that has resulted from changes in the system of production and technology.

In the event of job losses, mutually agreed social plans that integrate with local economic initiatives are intended to reduce the impact of these outcomes. For example, Transnet and Telkom have already set aside approximately R2.3bn for this process.

Issued by Ministry of Public Enterprises

13 February 2001