SOUTH AFRICA'S PLANS FOR RESTRUCTURING

C O N F I D E N T I A L SECTION 01 OF 03 PRETORIA 003113 SIPDIS DEPT FOR AF/S TCRAIG; AF/EPS DKRZYDA USDOC FOR 4510/ITA/IEP/ANESA/OA/J DIEMOND COMMERCE ALSO FOR HVINEYARD TREASURY FOR BRESNICK AND AJEWEL DEPT PASS USTR FOR PCOLEMAN E.O. 12958: DECL: 07/09/2014 TAGS: EINV ETRD ECON SF SUBJECT: SOUTH AFRICA'S PLANS FOR RESTRUCTURING REF: A. PRETORIA 1396 ¶B. PRETORIA 713 ¶C. 03 PRETORIA 1624 Classified By: ECON MC Jeff Hartley for reasons 1.5 (b,d). ¶1. (C) SUMMARY. Public Enterprises Minister Alec Erwin recently refuted union assertions that the government had abandoned its plans to sell-off state assets and restructure state-owned enterprises. While senior government officials concede that partial privatizations of Eskom, Transnet or Denel would not take place this year, they expect the sale of core and non-core businesses in those parastatals to proceed as planned (Reftel A). A senior Transnet official provided details on Transnet's plans for restructuring its diverse operations. END SUMMARY. ¶2. (SBU) Over the past several months, the Congress of South African Trade Unions (COSATU) has declared victory in its fight against the government's privatization efforts. COSATU General Secretary Zwelinzima Vavi cited the absence of a privatization budget in the last two national budgets, the introduction of an extended public works program, and the commitment by the ANC in its manifesto that government would play a leading role in creating jobs as evidence that government had abandoned its privatization policy. The public perception created by these statements was that government was abandoning any sell-off of state assets and backing away from its commitment to restructure state-owned enterprises. ¶3. (U) Minister of Public Enterprises Alec Erwin denied that this was the case in a June 14 statement to Parliament. Erwin said that the government had not deviated from its policy on restructuring for the last ten years and added, "it is not our intention to do so now." Erwin further elaborated that "in the case of Eskom, Transnet and Denel we will move to implement concessions, joint ventures and PPPs" over the next five years. Erwin did indicate, however, that this administration's top priority was to create jobs for the nearly 40 percent of South African's who were unemployed. Erwin said that enhancing the efficiency and profitability of state-owned enterprises would be key to generating economic growth and employment opportunities. ¶4. (SBU) A senior Department of Public Enterprises (DPE) official told Econoff that Erwin's statement that "Eskom, Transnet and Denel will remain as SOEs" (state-owned enterprises) did not contradict previous commitments to partially privatize portions of those parastatals. He said that Erwin's statements only meant that the state-owned enterprises would not be wholly privatized. The official said that DPE still planned to privatize 30 percent of Eskom's generating capacity, identify an equity share partner for Denel (South Africa's defense manufacturer),and streamline Transnet, but conceded that these deals would not take place this year. The DPE official also said that the sale of non-core businesses held by Eskom and Transnet would take place as originally scheduled (Reftel A). ¶5. (C) A senior Transnet official reporting directly to Minister Erwin on the streamlining of the parastatal told Econoff that all Transnet businesses would be sold except Spoornet, National Port Authority (NPA),B2b Africa, Transwerk and the logistics resources of Viamax. In addition, he said that Transnet's management workforce would be trimmed from 700 employees to 50. ¶6. (C) The same official described the fate of other Transnet businesses as follows: - South African Port Operations (SAPO): Runs container terminals and handles cargo at South Africa's six ports. Transnet will keep SAPO. - National Port Authority (NPA): South Africa's port authority. The NPA will be corporatized by March 2005 and held as a subsidiary until Transnet has a reliable revenue source independent of the NPA. The Public Enterprises Minister will appoint independent directors. In addition, Durban Port's container terminal will be concessioned this year. NOTE: The official requested logistical assistance for an Oct. 7-8, 2004 visit to CSX Intermodal's facilities in Charlotte. Trade Development Agency officials are acting to facilitate the request. END NOTE. The Cape Town Port Manager separately told Econ M/C that the Cape Town Container Terminal would be concessioned at some future date. - SAA: South Africa's state-owned airline. Transnet will sell SAA. - Metrorail: Inter-city rail transport of passengers. Metrorail was reassigned in June to the Department of Transport. The Transnet official said that Transnet would get out of all passenger services. - Petronet: Petronet owns, operates, and maintains 3000km of oil pipelines. The official said that the Department of Minerals & Energy is interested in acquiring this business. It will not be sold to the private industry. - Propnet: Propnet is the largest landowner in South Africa. Transnet will keep the warehouses, but sell off the rest of the company's property assets. - Transtel: Transnet will sell or incorporate Transtel for its 15 percent equity share in the Second National Operator (fixed-line telecommunications company). - Freight Dynamics: Freight Dynamics is a trucking company that offers road transport solutions. Transnet will sell the company. - Transwerk: Transwerk provides rolling stock and rail-related products. Transnet will align Transwerk under Spoornet. - Transwerk Foundaries: A Traswerk subsidiary. Transnet will sell the company. - Transwerk Perway: A Traswerk subsidiary. Transnet will sell the company. - MTN: Africa's most profitable cellular telephone company. In April, Transnet sold its remaining 5 percent stake for R2.5 billion ($417 million). - Autopax: This bus company transports passengers throughout South Africa. Transnet will sell the company. - B2b Africa: An eBusiness supply chain management company. Transnet will keep use this company to build a future unified logistics product. - Viamax: Transet will keep the logistics resources of this fleet maintenance and management business, but sell the rest of its assets. - V&A Waterfront: Transnet Pension Fund will keep its 72 percent share in the Waterfront, but Transnet will sell its 28 percent to a public agency such as the Public Investmet Commission (PIC). - Transure: Transnet will liquidate this company. - Apron Services: A ramp handling company operating at the major South African airports. Transnet will look to sell its remaining 49 percent share. - Marine Data Systems: The company specialized in remote tracking systems, but was closed. Some aspects of the firm will be relocated to the NPA. - Protekon: Transnet will this engineering company to a BEE firm. - Air Chefs: This wholly owned subsidiary of SAA provides in-flight catering services. It will be sold together with SAA. - Fleetcall: Fleetcall offers nationwide coverage for voice and data calls between a dispatcher and vehicles on the move. This company will be sold to a BEE firm. - Arivia.com: Transnet will sell this information technology company. ¶7. (SBU) Erwin also indicated in his statement to Parliament that future initial public offerings (IPOs) of state-owned enterprises were not out of the question. While details of another Telkom IPO and privatization deals involving South African Airways (SAA) and Airports Company South Africa (ACSA) are currently unavailable, the Transnet official said they might be revealed in September when DPE releases its investment strategies for the state-owned enterprises under its jurisdiction. HUME