SOUTH AFRICA'S PLANS FOR RESTRUCTURING

C O N F I D E N T I A L SECTION 01 OF 03 PRETORIA 003113

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DEPT FOR AF/S TCRAIG; AF/EPS DKRZYDA
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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