PROPNET on Consolidation of State-Owned Enterprises: briefing

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Public Enterprises

10 September 2002
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Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
11 September 2002
PROPNET ON CONSOLIDATION OF STATE-OWNED ENTERPRISES: BRIEFING

Chair:
Mr B Martins (ANC)

Documents Handed Out:
State Property Consolidation: Strategy and Update

SUMMARY

The Chief Executive Officer of Propnet, a division of Transnet, briefed the Committee on the consolidation of state owned properties as an initiative pursued by the organisation. He pointed out that this process would include such entities as Telkom, Eskom, Denel and others where properties were redundant and not in use. This process would focus on the involvement of the government as the main stake holder. Concerns were raised that this initiative should reflect a strong black economic empowerment focus.

MINUTES
Mr Mashinini, CEO of PROPNET highlighted the background to the process of consolidation of State Owned Enterprises. In 2000, a policy framework for accelerating the restructuring of state-owned enterprises was introduced. The property portfolio of the State Owned Enterprises was as follows; Telkom valued at R 4 billion ; Eskom valued at R 1 billion; Denel valued at R750 million commercial and more than a billion in factories, and Transnet at about R 7 billion. The estimated value of potential property that could be included was approximately R 6.5 billion.

Mr Mashinini pointed out that the shareholder's intention at this point was very clear and seemed to be aimed at achieving the intended objectives. The shareholder, which was the government, had publicly declared and promoted its intention to consolidate. However, the property portfolios of Denel, Eskom and Propnet were being studied with a view to identify restructuring options.

The committee was informed about the shareholder objectives which included; to realise and optimise returns from the State Owned Enterprise's property portfolio, achieve business efficiency and effectiveness by eliminating duplication and also eliminating undesired subsidies through properties amongst other issues and lastly also to address distortion and broaden BEE participation. The strategies for achieving shareholder objectives were that entity could evolve by merger of the portfolio and SOEs become shareholders based on the value of properties owned. Secondly, the shareholder established entity and injected capital to acquire properties from participating entities.

Functions of the property entity include, the provision of property business accommodation solutions to the state organs and private sector; technical expertise as well as facilities and property management. Shareholder objectives through government benefits include commercial benefits such as the generation of revenue, saving government resources and the political benefits include proper coordination with all stakeholders, contribution to social and community development as well as efficient utilisation of property assets.

Key issues for consideration include; guarding against the tendency to saddle the property entity with non-performing assets. Specialised property like armaments, electricity generating property should be excluded and the SARCC properties should be included. He pointed out that the way forward was that firstly a detailed study to be sanctioned by the government as the stakeholder had to be undertaken; secondly, a promotion of the consolidation or formation of the state property entity must be driven by shareholder within specific time frames. Thirdly, a clear directive from shareholder must be issued for alignment. He pointed out that this is a dream that needed to be realised and the political will seemed to be strong enough for ordinary people on the street to own these properties.

Mr Mabunda, a PROPNET official confirmed that cabinet had approved this venture and this would take about 2-3 months for bureaucratic purposes and after that they would accordingly assess the benefits, issues and other aspects around this venture.

Discussion
Mr Khomphela (ANC) pointed out that the committee was impressed by this initiative to consolidate state owned properties. He commented on the issue of renewal programme which seemed to be focused on the urban areas and envisaged this including properties elsewhere.

Mr Odendaal (NNP) asked the CEO about the total area owned by the state which would be available through this initiative.

Mr Mashinini stated that at the moment he was not in a position to answer, hence the need to commission a study to establish details like these.

Mr Mohlala (ANC) pointed out that as an initiative of the government, in moving forward, could PROPNET give this committee an assurance that there would be a bias towards Black Economic Empowerment during this process?

Mr Mashinini pointed out that as part of this strategy, it was important to pursue BEE objectives, especially in the commercial sector to facilitate job creation and wealth creation process for the previously disadvantaged.

Mr Frolick (UDM) commented that this was a good opportunity for the state to 'give back' land for instance to the people who were dispossessed of this land.

Mr Khomphela (ANC) asked about the issue of ownership of former and current rail properties as to why were these almost exclusively owned by white people? What were the procedures set to determine the disposal process?
Also asked about the land issue regarding the land owned by foreigners who did not reside in the country - what was the situation and what could be done?

Regarding the railway ownership issue, Mr Mashinini pointed out that this was a result of the distorted pre-1994 era where the sale of this properties was made in preference of white people. He added that Transnet Housing was currently addressing the problem and about 80% of the loans provided was earmarked for the previously disadvantaged peoples.

Regarding the foreign ownership of land, this was a question of national debate that PROPNET could not comment on.

The meeting was adjourned.

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