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Catching on slowly to a growing ide... Selling the message of buying into priva... Public sector shies away from rivalry at... State finds its infrastructure by anothe... Battling to uphold the profit principl... |
Battling to uphold the profit principleAn analysis of the country's largest parastatals finds a mixed bag of fortunes. While some have managed to balance the need to meet obligations pertinent to a public sector company with a healthy bottom line, others are clearly strugglingThe electricity utility, South Africa's largest corporation with assets of R53.8-billion at the end of last year, is one of the few parastatals that can rightly claim to be a world class company. Yet any mention of its privatisation - or that of some of its power stations - sends the trade unions into a frenzy. So much so that to date Eskom executives have ruled out an imminent departure from its current status. They point out that the group operates effectively on private sector principles while at the same time meeting its ambitious social obligations: ý Eskom has electrified well over 900 000 homes since 1994 and is on track to achieve its 1.75-million target by the year 2000. ý It has achieved a real 17% reduction in the price of electricity, making SA electricity the cheapest in the world. A further 15% real cut is promised until 2000. ý Net income surged from R2.6-billion in 1995 to R3.1-billion in 1996 on a 9% rise in sales to R18.7-billion. Despite these impressive statistics, analysts warn that recent developments may require Eskom management to review its position on privatisation. Eskom plans to grow its operation regionally - a programme that would require a costly expansion of the electricity grid. Its ability to self-finance the electrification drive could also be impeded by proposed legislation forcing Eskom to pay taxes and dividends. Cabinet will decide on a bill later this month and Eskom has warned that, depending on the level of taxation and dividend, the pricing structure and the rollout numbers for its electrification plan could be reviewed. If Telkom were the benchmark for SA's privatisation programme, it would bode well for the policy. The first parastatal on the block, it received R5.6-billion for 30%, an excellent price when one considers that the strategic equity partners (SBC Communications of the US and Telekom Malaysia) are also committed to doubling the telephone network over five years. The government had to make a number of major concessions to attract the deal - a five-year monopoly on mainstream services and strong management control for the equity partners - but on balance analysts believe this was a price worth paying. The equity partners, though, got a good deal in return. Telkom this month announced it lifted attributable profit in 1996/97 by 63% to R1.95-billion on a 23% rise in revenue to R16.3-billion. Its balance sheet also looks healthier with interest-bearing debt down from R8.7-billion to R7.2-billion. The better-than-expected results, coupled with other operational efficiencies, have enabled the group to drastically reduce the forecast costs of its network expansion programme from R53-billion to R40-billion. Even at the lower cost, though, it is the most expensive network expansion ever undertaken in Africa. South Africa's third largest, and undoubtedly its most dynamic airline, could be sold by next month. Following the withdrawal of Richard Branson's Virgin Atlantic from the bidding, the revenue from its 100% sale is now expected to be below R100-million. Four bidders remain - Air Malaysia, Comair/Rethabile, the Phoenix consortium and Virgin's previous partner, Bhekilanga. The Comair/Rethabile group has emerged as the favourites to win the bidding despite some competition policy concerns resulting from the tie-up between Comair and Sun Air. Sun Air only flies two routes at present - Johannesburg to Durban and Johannesburg to Cape Town. A strong alliance partner would allow the airline to extend its network to other destinations. AIRPORTS COMPANY The Airports Company is the crown jewel among parastatals. Over the past four years the company has turned a 1993 deficit of R58-million into a pre-tax profit of R58-million in 1995 and R223-million in 1996. Further improvements are expected in the past financial year, says managing director Dirk Ackerman. Ackerman managed to transform the company's bottom line by gradually diversifying its profit stream from the traditional reliance on aeronautical income to property and retail development. The group recently unveiled a R1.2-billion plan to transform the major airports at Johannesburg, Cape Town and Durban over five years, and to develop dormant land adjacent to its nine airports around the country. Revenue from aeronautical fees remains steady, though, following the sharp increase in the number of international airlines flying to South Africa and the resultant surge in passenger numbers. The success of the company can be measured by the interest generated among companies looking to buy into it. All the major international companies are likely to bid, including the British Airports Authority, Malaysian Airports and Schiphol Amsterdam. Ackerman says only 49% is up for sale - a stake currently valued at about R1.3-billion. About half the shares up for sale will go to a foreign investor, 10% each to a black empowerment partner and the National Empowerment Fund, and about 4% to staff. SAFCOL While the government has given its backing to the forestry company's privatisation, no details have yet emerged. Key issues such as the percentage of shares to be offered and whether a foreign equity partner should be brought in have yet to be decided. However, both labour and management agree that in order to be financially successful - while at the same time boosting job numbers - Safcol needs to add considerable value to its sawmilling division. The company owns 20% of South Africa's total afforested area and has some meaningful downstream activities in the form of five sawmills. But the company has been plagued by poor results, potential land claims and contract disputes with some of its customers (see "Public sector shies away from competition at any price"). In the 1995/96 financial year, the group reported operating income of R34.5-million on turnover of R467-million compared with R45.5-million and R450-million the previous year. High wage costs are largely to blame for the poor results - the group has an overstaffed workforce which is paid 40% more than those of its competitors. Investors will find this a major deterrent as the group has also promised no retrenchments from privatisation. ALEXKOR The privatisation of Alexkor, the Namaqualand diamond mine valued at about R250-million, is well behind schedule as the restructuring committee continues to resist policies handed down by the Ministry of Public Enterprises. Unexplored marine leases make the mine potentially lucrative. It produces a mere 200 000 carats a year but the area is characterised by a high percentage of lucrative gem diamonds. The company has been badly mismanaged, however, and is believed to be running out of reserves. Production is down by 30% and one third of all sales are believed to have been smuggled out. A R35-million loss is expected for the year to end-June 1997. Government's attempts to impose more rigorous management procedures have been opposed by the mine's restructuring committee comprising labour, management, the provincial government and the community. The community, through the Alexkor Trust, receives 30% of taxed profits and is believed to have asked for a similar stake in a privatised group. The sale of the resort company has been delayed while claims on Aventura-owned land are being investigated. Nevertheless the group remains an attractive proposition for investors seeking access to the burgeoning tourism market. It owns some prime properties at Blydepoort, Loskop Dam and Swadini, but does not have the resources to expand its operation. In the 1995/96 financial year it reported a profit of R2-million on turnover of R123-million. Up to 10 local and foreign companies are said to have expressed an interest in Aventura, a list that could include such heavyweights as Safren, Kersaf and Malaysia's Samrand. A recent amendment to the Act governing Aventura will remove the 20% restriction on foreign ownership.
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