Over the years, state-owned enterprises (SOEs) have played an important role in the South African economy. The well-operated and financially sound enterprises are and have been crucial for infrastructure services such as energy, transport, and water, all of which are necessary to grow our economy and to ensure equity.
However, in recent years, the SOEs have been honey pots of State Capture, largely because of their large procurement spend. As Daniel Kaufmann puts it, “corruption is the name, but procurement is the game.” Unfortunately, we are still recovering from the terrible damage caused by looting and State Capture.
We are hard at work to reform and restructure the SOE sector, which has been so badly impacted by State Capture. It will take time, courage and huge energy to achieve. But achieve it we will.
Repositioning, reforming and repurposing SOEs
This year we will witness changes to the architecture of SOEs and the direction being taken. A set of structural reforms is being introduced to ignite growth in the economy and to address our capacity challenges which have been compounded by the Covid-19 pandemic.
To recover from ruthless looting and destruction, we will:
- Reposition Eskom for energy security, the increased use of clean renewable sources of energy and the energy mix prescribed in the IRP 19, and implement a Just Transition;
- Introduce key changes in the freight logistics: rail, ports and large investments in infrastructure; and partnerships with particularly the black private sector through appropriate concessions;
- Reposition Denel with a new business model; and
- Select a Strategic Equity Partner for South African Airways (SAA).
The above strategic areas will be accompanied by other interventions across the SOEs, including:
- Review of their mandates;
- Recover funds lost through theft and looting;
- Review contracts irregularly obtained;
- Change procurement policies for efficiency and integrity;
- Ensure the implementation of localisation policies; and
- Economic transformation which will include: empowerment of small businesses and others.
In addition, our SOEs will take the lead in:
- Research and development;
- Innovation and technology development; and
- Support Information Communication Technology developments
These activities will positively impact renewable energy, address climate change and support our education and health sectors. And in doing so, we shall be actively seeking ways to co-create wealth in partnerships with the private sector and other enterprises.
Here are examples of a set of structural reforms being introduced to four of our biggest SOEs, Eskom, Transnet, SAA and Denel:
Energy security and Eskom
Restoring Eskom to operational and financial health and accelerating its restructuring process is central to this objective. In this regard, the Department of Public Enterprises (DPE) will work with the Department of Mineral Resources and Energy and other departments to ensure that all sources of energy are accessed.
Eskom will continue the intensive maintenance of power stations, improve emissions compliance, and complete the construction of Medupi and Kusile.
The electricity public utility will rapidly develop and deploy new, clean sources of electricity. It will also procure more generation capacity by opening up the power system to renewable sources of clean energy.
Eskom will participate in the building of renewable energy, and private sector partners must build a significant part of the renewable capacity. Government and Eskom will expedite Eskom restructuring into three separate subsidiaries, i.e. Generation, Transmission and Distribution. Implementation of the Framework Agreement for the Social Compact (Eskom Social Compact) on supporting Eskom for inclusive growth will be critical to ensure energy security.
The logistics and transport sectors are vital to the success of the economic recovery plan and stimulate economic growth. Our ports and rail must become efficient and competitive and we need to lower the cost of doing business. Transnet will implement third-party access on freight rail lines.
That is why the three Transnet Port Terminals (TPTs) — Cape Town, Richard’s Bay and Durban — are the focus for opportunities for new entrants to drive transformation in port operations.
The initiative to upgrade Durban as a hub port for Southern Hemisphere shipping will see Transnet, the National Port Authorities and Transnet Port Terminals initiate the process to concession Point Terminal for construction and operation.
The success of Denel is dependent on a clear national vision of the role and place of defence and related industries in a changing globalised world. The new business model of Denel must respond to these challenges.
Therefore, Denel will be restructured so that it can become fit for purpose, commercially sustainable and not dependent on the fiscus. We anticipate that Denel will enter into strategic partnerships with original equipment manufacturers (OEMs) to add value to the local economy while benefiting from a growing and untapped international market.
South African Airways has been in business rescue for just over a year. It is time for the business rescue practitioners to exit. The restructuring, we believe, will result in the emergence of a competitive, viable and sustainable national airline that is agile, techno-savvy and that will not need any further funding from the fiscus.
We are nearing finality with the appointment of a strategic equity partner that will not only fund the new airline but also introduce the technical expertise to ensure a successful SAA.
Recovering stolen money and assets
To maintain and upgrade SOE operations, we are also taking decisive steps to recover assets, money and intellectual properties stolen from SOEs as part of State Capture.
Most of the money has been sent out of the country using complex financial mechanisms and schemes with the participation of lawyers, financial advisers and institutions. The stolen money belongs to the people of South Africa.
It is money required to maintain and upgrade SOE operations – like supplying electricity to homes and factories, getting rail passengers to work on time and then back home in the evening, and for moving freight across the country.
Reviewing procurement processes
Procurement processes and contract management were deliberately collapsed and as a result, billions were paid by SOEs with no services being rendered or with zero value accruing to the state.
So, as part of the effort to clean up after State Capture, the SOEs are continuing to review existing contracts. Corrupt contracts will be set aside.
As we reform state-owned enterprises, making them more dynamic and responsive, one of the key public interest mandates is to embrace localisation. Localisation can drive growth in jobs and economic output. For example, the DPE has contracted all SOEs within its portfolio on the following to spend 75% of their procurement on locally manufactured products, 15% on companies owned by women, and 10% on entities owned by black youth.
We are working hard to reposition, repurpose and stabilise the SOEs to contribute to the acceleration of economic growth and development.
No more bailouts
Government’s aim is to stop the reliance of SOEs on the fiscus. Bailouts need to be a thing of the past. We expect SOEs to boost and support the economy and in doing so play an entrepreneurial role.
We are determined to root out corruption and all vestiges of State Capture. There will, of course, be resistance, misinformation, whataboutism and distractions. Once repositioned, reformed, repurposed and stabilised, the SOEs will be at the forefront of co-creating value and transforming the economy for national prosperity.
We are single-minded in this endeavour. We shall give no quarter to those bent on retaining the status quo to advance their self-interest. We must collectively as one nation, reclaim our sovereign assets – human and material.
These institutions belong to South Africans. They must serve the national purpose – equality, jobs and eliminate hunger in our country and the development of its people. DM