In this Issue
Comment and Analysis
South African Airways
Transnet Non-Core Assets
Comment and Analysis
This will be the last regular issue of “Privatization Review.” After the conclusion of this round of non-core asset disposals of Denel, Eskom and Transnet, there is not likely to be any significant activity. The political climate in South Africa will probably not be conducive to any further restructuring, at least until after the next elections in 2009.
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To the extent possible, we will distribute tender announcements as and when they are made available. Unfortunately, the process thus far has not been transparent and there have been disposals done without utilising an open tender process.
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Unbundled SAA set to fly solo from end of year
The unbundling of national carrier South African Airways (SAA) from the Transnet stable would finally take place at the end of this year, Transnet CEO Maria Ramos said yesterday. Ramos said the plan was to transfer SAA to government, where the airline would be established as a standalone company reporting to the public enterprises department.
Regional carrier SA Express, which is also owned by Transnet, will be sold to SAA before the transfer, and its staff, together with those of SAA, will be transferred along with their firms to government.
“Transnet's future does not include the airline business,” Ramos told guests at a ceremony to unveil SA Express's new aircraft acquisition. She said Transnet wanted to focus on its core business of bulk freight transportation, which involved operating railways, ports and petroleum pipelines.
Although Transnet had said previously that the unbundling of SAA could be delayed due to legislative procedures, Public Enterprises Minister Alec Erwin said this week that legislating the transfer would no longer be necessary. Last year, CEO Khaya Ngqula said the airline would need recapitalisation of between R3 bn and R4 bn once the unbundling process had been completed.
Business Day, May 11
CEF delays gas pipeline empowerment deal
Black investors are eyeing a 25 percent stake in the Mozambique-South African gas pipeline that is owned by iGas, but the gas parastatal, burdened by repaying debt on the R609 mn acquisition, will hold on to its share for now. IGas, a division of the Central Energy Fund (CEF), bought the stake from Sasol last June and announced that it would seek a black economic empowerment (BEE) partner.
IGas refused to discuss the deal's price tag, but according to forms filed by Sasol in compliance with its secondary listing in New York , the deal was worth R609 mn and earned the petrochemicals group R189 mn.
Sasol, which produces natural gas at Temane and Pande, 700 km north of Maputo, and pumps it along the 865 km pipeline to its synthetic fuel operations in Secunda, continues to hold 75 percent of the pipeline's holding company, the Republic of Mozambique Pipeline Investments Company (Rompco).
Mike de Pontes, the chief operating officer of iGas, said it was “a bit early on in the process to sell out” of Rompco.
Business Report, May 15
Transnet and unions sign restructuring pact
Transfers of various business units to government or private sector can proceed
The nine-month dispute between Transnet and four trade unions over the claimed unilateral restructuring of the company ended yesterday with the signing of a co-operative agreement between the parties. This means that Transnet will now go ahead with its plan to sell some of its non-core business units to the private sector.
In terms of the agreement, mass transport entities such as long-distance passenger train service Shosholoza Meyl will be transferred to government to enable it to fulfill its social service obligations. Earlier this month, Metrorail was transferred to the transport department.
Transnet CEO Maria Ramos said her management team's plan was to streamline the company and to focus it on bulk freight transportation. She said the new Transnet structure would consist of core businesses Spoornet, Petronet, SAPO and the National Ports Authority. Other companies, such as the conferencing facility Esselen Park, fuel procurement firm HAS, Protekon and Transwerk would also be retained.
Business Day, May 17
Transnet to sell its telecoms unit
Labour is not against the disposal of the businesses Transnet listed as non-core
Transnet plans to sell its telecommunications division Transtel, which holds a 15% stake in the second national operator (SNO), before the end of the year. However, the ministry of public enterprises said this weekend that the parastatal would keep its SNO stake. This is in contrast to Transnet's restructuring objectives, as the company said it would be selling off its minority stakes.
Transnet is selling non-core businesses as part of a restructuring process that would see the company streamlined into railway, harbor and pipeline businesses.
Prajeep Maharaj, the head of strategy and transformation at Transnet, said this weekend that the minister of public enterprises had until the end of the year to consult organised labour over details of the sale of Transtel. Transtel was an attractive business because, according to Transnet, it had statutory rights to own and operate a national and international telecoms network on behalf of itself and other companies.
But the decision by the parent company, Transnet, to keep the premier attraction to investors – its 15 percent stake in the country's SNO – makes it less attractive.
Gaynor Kast, the spokesperson for the department of public enterprises, said Transnet would keep the SNO stake for the foreseeable future. It is not clear how much the stake is worth.
Business Report, May 23
BEE rules for bidders in Transnet asset sales
Transnet would lay down demanding broad-based empowerment criteria for firms wanting to bid for its non-core assets, the company's executive for strategy and transformation, Pradeep Maharaj said yesterday.
Now that the parastatal's dispute with trade unions over the restructuring of the enterprise has been resolved, it can now start selling assets such as the V&A Waterfront in Cape Town and the Blue Train. CEO Maria Ramos told the National Assembly's public enterprises portfolio committee that all non-core assets would be disposed of by the end of December.
Maharaj said the Transnet board had approved the prequalification criteria for bidders – that bidders must be 25.1% black owned; score at least 40% in terms of the BEE scorecard; demonstrate access to available funds; and comply with tax and corporate governance obligations.
Transnet would not provide funds for the purchases as it had no resources for this, though it might have to allow for the sale of convertible securities as a disposal option, Maharaj said. The parastatal would also steer clear of management buy-outs.
Business Day, May 25
Transnet's housing funds draw wrath of registrar
Transnet may soon face the wrath of the registrar of banks if the regulatory body finds Transnet Housing guilty of contravening the Banks Act, it emerged last week. Transnet Housing has, for many years, taken deposits from employees and used the surplus funds from deposits to finance operations, the company's 2005 annual report shows. This may be in contravention of the Banks Act, it says.
In its annual report, Transnet said that it was taking action because it had found that there was a possibility of non-compliance with the Public Finance Management Act (PFMA). Transnet Housing, which has been listed by the transport utility as one of the non-core businesses to be sold before the end of the year, has been riddled with problems lately. This includes the dismissal of four top executives; the suspension of 16 staff members for corruption in March; and a fallout with organised labour, which almost culminated in a strike, in August last year.
Business Report, May 29
Transnet bid to sell majority stake in V&A
Tough measures to ensure fair, equitable and transparent bidding process
Transnet and two of its pension funds have launched a process to sell a majority stake in Cape Town 's Victoria and Alfred (V&A) Waterfront by September. The V&A is considered the jewel in the crown of SA's property investment sector.
Transnet CEO Maria Ramos said yesterday the parastatal would sell 77.4% or 100% of the V&A if a third pension fund, the Transnet pension Fund, decided to dispose of it's 22.6% stake. It had the option to increase its holding to 26%. She said offers would only be considered for at least 25% interest in V&A, and the preference would be for a transaction involving a single buyer.
While Ramos skirted questions about the value for the V&A, industry estimates have put the figure for between R3 bn and R6 bn for the area around the old Cape Town docklands. It is SA's most visited tourist destination, and attracts up to 22 million visitors annually.
Interested parties will be expected to pay a R50,000 non-refundable fee to obtain financial documentation on the V&A. Offers would be due in late July.
Business Day, May 30