High-flying Alec is hobbled

Alec Erwin, Minister of Public Enterprises, has been hobbled by the national treasury which, contrary to expectations, advanced only a miniscule portion of the billions of rands the minister needs for his elaborate plans for state-owned enterprises.

Finance Minister Trevor Manuel indicated that while funds had been set aside for projects that fall under the public enterprises ministry, their transfer was contingent on Erwin presenting the treasury with business plans.

There is a subtext: Manuel has used his financial muscle to take control of the public enterprises department until it gets its house in order.

For example, the Mail & Guardian understands that the Cabinet vigorously debated the R4-billion bailout for national carrier South African Airways (SAA), through Erwin, who approached the treasury earlier this year. The majority in Cabinet, driven by the treasury, believes that parastatals have to cut from state guarantees and run as viable commercial entities.

Manuel’s conspicuous silence in his budget this week on the SAA request for recapitalisation indicates that the treasury is no longer willing to float the airline following the earlier R7-billion government recapitalisation, when the airline teetered on the edge of bankruptcy following the disastrous decision to hedge against a falling rand.

“SAA is the flagship national carrier responsible for providing a competitive airline environment. SAA needs to be run on a commercial basis,” Manuel noted.

Erwin’s two newest parastatals, Broadband Infraco and the Pebble Bed Nuclear Reactor (PBMR) company, will only receive full funding once Infraco has presented treasury with a business plan and the PBMR company can prove that local and international investors will capitalise the 49% set aside for private investment. Government holds 51% of the company.

Manuel has set aside a contingency reserve of R3-billion in the budget for these and other parastatals, “subject to a number of conditions and approvals”, he said.

Erwin had said that he aimed to have Broadband Infraco, the company which will supply Telkom competitor Neotel with its infrastructure, up and running by next month. It is not clear now whether delays in the budget approval process will further delay setting up a viable competitor to Telkom.

Broadband Infraco will only receive additional funding (over and above the R670-million start-up allocation) from the R3-billion contingency reserve once Erwin has presented the treasury with a business plan for the new parastatal.

The PBMR, one of Erwin’s pet projects, receives R6-billion over the next three years to build a developmental or test facility. But the advancement of the R6-billion is dependent on the company finding a similar amount of money from outside shareholders.

The treasury has reserved its opinion on the PBMR project, indicating that unless the PBMR can prove its viability, government will pull out: “The economic feasibility for a [PBMR as a start-up company] is still questioned and cognisance should be taken of the socio and macroeconomic benefits,” according to the budget review.

Jaco Kriek, CEO of the PBMR company, denied that it faced closure as a result of the lack of financial commitment from the company’s majority shareholder, the government.

He said: “The funding situation is a shareholders’ issue on which PBMR does not want to comment. The question should best be put to the department of public enterprises as DPE has had discussions with treasury about the PBMR funding needs. Suffice to say that we are delighted about the strong support from Government. There are potential investors who are interested in taking equity in PBMR.

“The 51% can be misleading in view of the fact that Pebble Bed Modular Reactor (Pty) Ltd is going to be restructured in separate entities such as process heat, electricity, services and fuel to accommodate the various shareholders. There is no danger of PBMR having to close operations. We have enough money for the current financial year.”

The only sweeteners Erwin got were an additional R82,1-million allocated to state diamond company Alexcor for an exploration project, and an additional R847-million cash injection into struggling arms manufacturer Denel.

It is notable that the public enterprises department will shift from “managing privatisation” to “achieving national medium- to long-term economic and development goals”, according to medium-term expenditure estimates.

“The department … was initially established as the office responsible for privatising state-owned enterprises. But as the government’s fiscal position has stabilised, its priorities have shifted and the role of the state-owned enterprises has been redefined,” Manuel said. “Instead of privatising state-owned enterprises, they will remain government owned to play a vital role in economic growth.”

Erwin has been quietly reshaping his department into an agency for state-led development. But this is the first time the government has formalised its shift away from the sale of key state enterprises Telkom, Transnet, Eskom and Denel to private business.

The idea now is that the government will play a much greater role in managing these parastatals. Through improved efficiency and sound financial management, they will drive economic growth by operating off their own balance sheets rather than relying on state guarantees.

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Vicki Robinson
Guest Author

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