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Madam Speaker,
Honourable Members,
Chairpersons and Chief Executives of State Owned Enterprises,
Ladies and gentlemen.

I wish to note the presence in the Gallery of senior scholars from 11 schools from Cape Town, Langa, Gugulethu, Khayelitsha, and Woodstock who are visiting Parliament today. Your generation will provide the leaders, managers and engineers of the future, and so I extend a special welcome to you all.

We are now halfway down the road to 2004, the time we committed ourselves to complete the bulk of the restructuring of state owned enterprises. I am pleased to report to Parliament on progress and plans for 2002/2003. I look forward to a robust and informed debate and the contributions of Members that will help us move on.

Last year was an important and tumultuous year in many respects. The fortunes of information technology stock lost their flavour, economic pressures wobbled confidence in the global economy, and a number of emerging markets struggled to throw of the lethargy characterising their performances. 11 September had a global impact, sending some sectors into a tailspin and shaking confidence even more. At home, inflationary pressures, consumer price indexes, domestic investment and blockages in our economy surfaced. There are signs today of a global recovery. Our own economy remains robust - that indicates that we are over the worst of last year, and support for NEPAD is growing amongst important role-players.

The 2001 UNCTAD Annual Report notes that the South African approach to development is an appropriate one for tackling the issues of poverty, human resource development, and sustained economic growth. A more defined and active role for the state in conjunction with the private sector in a range of economic and social issues is essential for growth. A pragmatic approach, rooted in commitment to sustainable development and recognition of our special circumstances, remains our goal. As Bertolt Brecht reminds us, "It may be a mistake to mix different wines, but old and new wisdom mix admirably."

I wish to outline progress and plans within the context of the particular socio-economic themes that drive our restructuring programme. State owned enterprises must play a role in the overall economic development of our country. This means that their vision and mission, their structure, efficiency and effectiveness, must be geared towards the economic well being of our country. They must promote good governance, sound financial management and ethical probity. They must serve public needs and provide quality services. Where we choose to restructure SOEs, we promote models to enhance their positive contribution to the economy and their global competitiveness. We also recognise that the larger, strategically placed SOEs like Transnet, Eskom, Telkom and Denel, play a significant role in international relations and in the foreign policy of our country.

We have reached the stage now where we can identify specific restructuring benefits to the public purse as well as to the public at large. Although public attention is sometimes riveted to the question of the financial proceeds achieved through individual transactions, this is not the only question of importance.

Between 1997 and the end of March 2001, Government undertook some 18 restructuring initiatives, including outright sale to black economic empowerment groups, the sale of minority shares to SEPs or BEE groups, and acquired dividends through Sasria's creation. The National Revenue Fund account received just over R20 billion out of total proceeds of R26,79 billion. Last year, despite our decision not to proceed with the Telkom IPO, treasury received R7,5 billion out of a total of just over R8 billion. I can confirm that conditions have improved so that we can proceed with the Telkom IPO before the end of this current financial year. Pending compliance with conditions of the US Securities and Exchange Commission, we will also proceed with the transfer of 2% of Telkom, with a nominal value of over R376 million, on an equal basis to all employees employed at Telkom between 1999 and the present.

There are 9 other proposals in the pipeline that will also work towards the target of R12 billion set by Government in the budget. These include the 100% disposal of Rotek Vehicle Services, Roshprop and Trasnsmed; the phased disposal of portions of Roshcon; the sale of the three remaining Safcol packages of Amatola, MTO and Komatiland; the sale of 51% of Apron Services and Alexkor; and further income from the M-Cell transaction. I am not going to provide the specific value of each project as these depend on specific details and market related factors.

Let me now turn to the larger issues.

Forestry transactions involve complex issues such as land conversion, the introduction of more suitable wood types, integration of community interests and the establishment of down-stream industry and activity. All the disposals contain compulsory three-year worker retention agreements, include the community through the establishment of trusts, and secure current jobs. They involve hundreds of communities and cover hundreds of thousands of people in deep rural areas. The North Eastern Cape Singisi and KZN Siyaqhubeka disposals secured a temporary 25% Safcol stake in each package that will be reduced shortly to 6%, once finalisation is reached on an employee share option of 9% and a community share of 10%. Furthermore, rental of R5,3 million per annum will be paid into a Siyaqubeka community trust, and similar amounts into all the other Safcol packages. Zama Resources were selected as the final preferred bidder for the Komatiland assets on a similar plan. A land dispute in Amatola is resolved and we expect finalisation of that transaction by August 2002. The Western/Southern Cape plan to secure an SEP is well advanced as well.

Never before have black people, and particularly rural black communities who live adjacent to these forests, had direct access to sustainable resources of the forestry industry. This is community and rural empowerment at work in a manner that defies the most hard-nosed cynics.

Aventura resorts will no longer be part of the government's asset stable by the end of this year. Aldam and Christiana have been disposed of. Adverts for Kareekloof, Heidelberghof, Eiland and Pretoria were posted just this last weekend, and resolution of the land claims dispute at Aventura Blyde and Swadini is imminent. The emphasis here encourages black participation in the hospitality and tourism sectors. Transnet's hospitality asset, the Blue Train, will be concessioned this year to a private sector operator.

Direct community benefit from restructuring dominates plans for Alexkor diamond mine operations. After lengthy discussion with the Northern Cape Government, the Namaqualand community, the employees of Alexkor and other stakeholders to ensure that each has a defined role to play and benefit to secure, a 10% equity transfer to the community is envisaged. On offer is a 51% share to an SEP during this year to provide the necessary investment for exploration and sound management direction.

Engagements between Government and organised labour at the sectoral level have been extensive and constructive. We have a common commitment to retain jobs and where possible extend secure employment. Agreement has been reached and signed on the purpose, process and content of restructuring for Spoornet and Denel. Dedicated work teams have begun examining options for Spoornet, particularly the integration and consolidation of all passenger services and the rationalisation and integration of the general freight business, with special attention given to options for Orex, on an extended rail network. We have agreed upon a combined consultative and specialist assessment of light and low density and marginal lines, to relate Spoornet's economic efficiencies to possible socio-economic impacts on communities. We have also agreed to limited retrenchment affecting some 8000 employees over four years.

In March 2002, Government and organised labour signed a Memorandum of Understanding on the introduction of strategic equity partners into Denel that identifies a common vision for Denel and the key principles to guide restructuring. Denel's Social Plan includes the establishment of the Denel Development Agency that will retain a database of all retrenched employees and act as the premium labour pool for the company as a whole. It will also act as a procurement vehicle to assist retrenched employees to form SMMEs to access opportunities in the company. A R10 million development fund will assist affected employees, retraining will be provided and financial and personal counselling services provided as well.

Earlier this month, we announced the formation of Turbomeca-Africa, a new high tech engineering company specialising in manufacture, repair, maintenance and overhaul of a range of military and civil helicopter engines and components. This company is a partnership drawn from a 49% contribution of assets from Denel Airmotive and 51% from Turbomeca in France. All employees of Denel Airmotive, including a specially designated number of black employees earmarked for specialist engineering training, will transfer to the new company. A group of workers will leave South Africa soon to visit the Turbomeca facility in the south of France to familiarise themselves with the parent company. Turbomeca-Africa is designed specifically to cater for impressive all-African and southern hemisphere markets. Technology transfer and an expansion of manufacturing capabilities in South Africa are central elements of the agreement.

South African economic development depends on the emergence of globally competitive companies that export products with a high value added. Denel is one such South African company that has extended its global reach with a range of systems and products that are highly respected world-wide. However, a sluggish domestic market, increasing competition, the rationalisation of defence industries internationally, the high costs of research and development investment, and growing demand have all placed particular pressures on Denel.

I am pleased to announce Cabinet's approval of the acquisition by BAE Systems of 30% of Denel Aerospace and Ordnance for R375 million. The South African Government will retain its 70% share whilst we explore the options for an employee incentive scheme, for future BEE partners and other strategic equity partners inclusive of partners for the commercial asset portfolio and consider a possible IPO down the line. We will hold a "golden share" in respect of certain clearly defined issues that pertain to our national security. The size and extent of future shareholding and the nationality of the Chairperson and CEO we also reserve. BAE Systems has undertaken to add value to Denel through marketing and order book support, co-operation in R+D, technology transfer, management assistance and skills transfer in support of Denel's employment equity objectives, and assistance to enhance Denel's manufacturing capability to extract greater value for the company from Defence Industrial Participation orders. We are now finalising the appropriate transaction documents.

With the Turbomeca and BAE Systems agreements, the restructuring of Denel has reached a major milestone. Government welcomes these initiatives as evidence of the strong commitment to partnerships of value between South Africa on the one hand and France and the UK, between Africa and Europe.

Let me reflect briefly, on Eskom's restructuring. The Department of Minerals and Energy December 1998 White Paper included a vision for electricity supply and referred to government's commitment to a competitive multi-market model. Within this framework, Eskom's generation, supply and transmission would be incorporated as separate divisions. Subsequently, Cabinet approved proposals for the limited disposal of some of Eskom's generating capacity that included the disposal of 10% of Eskom's existing generation capacity to suitable BEE operators and a further 20% to other private sector operators, subject, of course, to an appropriate regulatory framework. This approach aims to derive benefits and efficiencies from competition and ensure that Eskom remains our dominant energy supplier. We have been in constant and detailed discussion with organised labour, sharing all these proposals since at least June last year, and this process continues.

Transnet is an integrated logistics company where each component part "talks" to the other to secure a seamless, uninterrupted transfer of goods, service and people to and from places of work, production and markets. In today's global environment, it is critically important that the farmer in the Gamtoos valley, or the craftsmen in the northern village, can be assured that their oranges or tables get to Durban or Port Elizabeth or Johannesburg International Airport in time, on time, and that they do not get stuck somewhere in New York, Frankfurt or Shanghai before getting to the customer. Let me give you two examples of how we can ensure this process. The first relates to a proposal to speed up the concessioning of the Durban Container Terminal as a pilot project to inform further port reform. The second relates to the participation of the National Ports Authority in the development of the Coega Port and the East London IDZ.

Durban harbour is now unhappily classified as a congested port by all container-shipping lines. Africa's largest container port is unable to maintain adequate performance levels to meet growing domestic and international demand that has led to at least four major effects. Exporters have been prevented from accessing markets. Costs related to production in general and exporting in particular have risen sharply and undermined competitiveness. Some shipping lines have deliberately chosen to by-pass SA, causing further pressure on our exporters. For example, the US is able to secure 14-day transit times out of Shanghai compared to Durban's 21-day transit time. South African shippers who use Durban are now considering using alternative exit and entry points, some of which are outside our borders. In short, the poor performance of Durban port operations is causing our competitive advantage to haemorrhage, reducing our attractiveness to global markets, and this will have a marked negative impact on the Durban, its environs, the Province, the country and the region as a whole.

Government implemented the first stages of port reform with the establishment of the NPA and the NPOD in 2001. It has since become clear that the economic impact of Durban's inefficiencies need urgent attention. Thus, we aim to fast track the inclusion of the private sector in the operations of the Durban Container Terminal whilst the land and port estate remains under state ownership. Operating rights for pre-determined periods and subject to specific terms will be transferred shortly through lease and rental contracts, regular concession contracts and concession contracts where responsibility for development is transferred to the private sector through build, operate and transfer type concessions. Labour will be given job security by new concessionaires for a minimum period of 3 years that respect current conditions, pension funds and other social security benefits. The whole process will take place within the framework of the National Commercial Ports Policy adopted in January this year.

I would like to stress that the Durban proposal is in line with the publicly approved Ports Policy, and that all stakeholders, including organised labour, participated in this process. The implementation details will themselves be subject to a consultation process with all stakeholders, including labour. The concessioning of port operations, fast tracked in the Durban case, must of course take full account of other port development strategies, including comprehensive long-term strategies for container facilities, the dry-dock terminals, the fruit terminals, the automotive sector and others. Specific ports in South Africa can be designated for more specialised activities. Hence, plans are in place to extend the recently completed motor vehicle loading facility at East London because of increased demand. The East London harbour will benefit from a R10 million investment to deepen the port to ease access for larger vessels. The port at Coega is designed to facilitate the development of particular industrial and employment activity in the Eastern Cape. The NPA will invest R1,7 billion for the construction of the Port and harbour infrastructure. Eskom will invest R1.2 billion to strengthen the transmission grid to support the intensive energy needs of Coega's factories and facilities. Spoornet will provide rail transport access to the port at competitive prices. Despite the views of some, the Coega port and development is on track and will steam ahead.

South Africa's key SOEs also perform development functions beyond our borders through partnership agreements, joint ventures, infrastructure development and business transactions. Their activities in Africa provide a solid platform upon which much of NEPAD's development agenda can be based. South Africans generally should be proud of the extent of the engagement of SOEs in Africa. Eskom Enterprises invested about R325 million in 2001 in a range of telecommunications, electricity supply, consultancy, infrastructure and hydroelectric projects in 30 African countries. Eskom Enterprises have projects valued at R2.5 billion in the pipeline for future development.

Spoornet has slowly expanded its contribution to African countries as well. In September 2001, Spoornet and CFM Mozambique reached agreement on a concession for the extensive rehabilitation of the line between Maputo and South Africa. It plans to invest about R200 million over 5 years to rehabilitate and overhaul many of the 110 locomotives that are on lease to South African mines and African countries, including Swaziland, DRC, Tanzania, Sudan, Cameroon, Botswana, Zimbabwe, and Kenya.

NEPAD and the constituting principles of the African Union identify the need for peace, security and stability in Africa as a major ingredient of our continent's renewal and economic development. Peace and security, unfortunately, do not fall like money from heaven, and require the existence of well trained, disciplined and appropriately armed police and security forces. South Africa's commitment to Africa's security needs is processed through the NCACC and Denel supplies more than 15 countries primarily with law enforcement equipment, material and training for internal policing operations. This is an important contribution that has our full support.

The reality of our case-by-case approach, driven by socio-economic needs, is obvious. But these efforts are at risk without sound and innovative financial management within SOEs, responsible corporate governance and the development of a profound culture of ethical probity and operation that goes beyond the minimal requirements of the legal order.

Development costs money; and sustainable development requires extensive investment. Generically, the financial position and economic impact of SOEs is beginning to show a marked improvement over previous years. The share of SOE borrowings as a percentage of South Africa's external debt has dropped from a massive 46% in 1990 to under 20% in 2001. The contributions of the non-financial SOEs to GDP hovers around 4%, and the surplus generated by them as a percentage of GDP is beginning to strengthen to above 1%. Borrowings, as a percentage of total domestic credit extension, remain below 1%. Control of debt, reduction of gearing ratios and other important financial criteria assume an important role within each SOE. Pension fund liabilities are being addressed, with some assistance from government. Transnet and Safcol in particular have benefited enormously through debt reduction. The larger SOEs have retained or improved their credit ratings over the past year. SAA's reacquisition of Swissair's shares at an effective benefit of R1 billion is a good example of turning challenge into opportunity. Turnaround strategies, such as those at Spoornet and SAA, alongside the adoption of SEPs, equity disposals or transactions like the M-Cell monetisation, have encouraged a more manageable financial environment within SOEs.

SOEs can now concentrate on capital investment, infrastructure development and reserving more resources for research and development. These internal arrangements and the contributions to the National Revenue Fund I referred to earlier, have prepared the way for the successful deployment of additional resources towards socio-economic priorities. There can be no getting away from the argument that improved financial management has a multiplier effect on efficiency, service delivery and general economic performance.

Corporate governance in South Africa faces enormous challenges. Sound corporate governance must build a new culture of responsibility, responsiveness and sensitivity. How we work together, how we respect each other as individuals and corporately, are just as important as why we work together. This approach to governance must inform all our operations, whether they are with unions, clients or partners, because above all, SOEs are pools of public resources, entrusted to manage and produce the very best services and products to us.

DPE's mission is encapsulated in the motto: "Maximising shareholder value". The large SOEs are leaders in their respective fields, they are well known domestically and internationally. They are the flagships of the state sector. It is absolutely critical that we all exercise the utmost ethical probity in all our dealings. Government has mandated Boards to root out corruption and improper action at source. They need to act swiftly and firmly but with absolute fairness, and where necessary follow through with the appropriate action. Along with their duty to implement the PFMA diligently, so they must deal with these issues. We owe it to the citizens and taxpayers of our country to let them rest assured that their assets are in good hands. Government recently strengthened a number of Boards, and already we have noted improvements. I am therefore confident that we are on the right track. There can be no turning back.

The initiatives that I have outlined this afternoon illustrate some important themes. First of all, the forestry deals outline clearly sustainable benefits of restructuring for local communities. The interests of the workers in SOEs, not only in their jobs but also the prospects for job creation, are central to all our efforts. Financial returns to the fiscus are an important aspect but do not drive the process of restructuring. The various transaction agreements are designed to maximise the economic potential of the SOEs down the line. Technology transfers and increased manufacturing capabilities are core features. Joseph Stiglitz, writing about the transition in the new Russia, concluded with respect to restructuring and privatisation that "success, rather than speed, is of the essence. Indeed, failures are reinforcing: if reforms are not viewed to be sustainable, then investors will not have an incentive to make the long-term commitments required for growth; one could get caught in a low-level equilibrium trap. Successful transition strategies have to have the property of time consistency, including political sustainability. "These are words that resonate throughout our approach to restructuring. But like Brecht, we would be wise to continue mixing old wisdom with new, in the interests of our people's future.

In conclusion, let me thank the Chairpersons and Boards of Directors of all our SOEs, their executive management, and all personnel for the way in which they have adapted to the tremendous challenges we face. My thanks and appreciation also to my Director-General, Sivi Gounden, and his hardworking team of managers, administrators and support staff in the Department and Ministry. Finally, my thanks and appreciation, too, to the Portfolio and Select Committees responsible for keeping my officials and myself on our toes at all times!

Issued by: Ministry of Public Enterprises, 16 May 2002