US embassy cable - 04PRETORIA3113

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