Disposal of Non-Core Assets of Public Enterprises: briefing

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Public Enterprises

21 June 2006
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PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
21 June 2006
DISPOSAL OF NON-CORE ASSETS OF PUBLIC ENTERPRISES: BRIEFING

Chairperson: Mr Y Carrim (ANC)

Document handed out:
Department of Public Enterprises (DPE) Property Project PowerPoint Presentation

SUMMARY
The Committee was briefed on the Department of Public Enterprises’ project to dispose of the non-core assets and properties of state-owned enterprises. The process of disposal was outlined and included an explanation of the broader transformation goals the Department hoped to achieve.

The Committee welcomed the good work of the DPE but pointed out that while the overall goals were laudable, they should not be lost in the details of implementation. In particular, the core idea of benefiting the previously disadvantaged should at all times be in the forefront.

MINUTES

Department of Public Enterprises (DPE) presentation

Ms Caroline Richardson, DPE Property Project Manager, said the project focused on transforming government businesses so that they focused on their core business and divesting assets and enterprises that are non-core. Properties for development, as distinct from non-core properties, had the benefit of optimising value for State-owned Enterprises (SOEs) by having greater social, economic and development impact.

As for non-core property, the department had identified an optimal way of disposing of them. She classified non-core properties into two groups: commercial and non-commercial properties. Of the non-core assets to be disposed, those identified as the non-commercial have been subdivided into those to be disposed to government and those to go to the Department of Housing, while the non-core assets were divided into those for sale and for further development.

On the process for disposal, she informed the Committee that the framework for disposing of the non-core properties had been approved by the Cabinet, but they were still waiting for the Cabinet Memorandum on the Broad-based Black Economic Empowerment (B-BBEE) guidelines for consideration. With regards to properties for sale, she informed the Committee that specific and clear tender processes had been defined together with clear transactions processes. This was also guided by the B-BBEE guidelines, coupled with a vision of maximizing the benefits for local people and communities in the whole process.

She further informed the Committee that the process of disposal also involved actual disposal to government itself. The DPE had signed bilateral agreements with the Department of Housing and the Department of Education, while discussions with the Land Affairs Department had commenced. Once this process of disposals to the government departments was over, the DPE would then proceed to dispose of properties to the public. Before engaging the public in the sales, public shows and awareness campaigns would be launched.

On the properties for development, the guiding process was under the Special Property Vehicle (SPV) programme. Elaborating further on non-core assets, she said these excluded assets such as railway stations (still owned by government), as the DPE recognised the importance of not selling assets that would be needed in the future even though they seem to have no commercial value under the current circumstances. Properties with the highest values were found in Gauteng and the Western Cape.

On B-BBEE guidelines for sales, the DPE had resolved to resubmit to Cabinet a memo seeking B-BBEE Guidelines applicable only to SOEs based on the Department of Trade and Industry Codes for Good Practice and the Property Sector Charter. The applicability of these guidelines to the properties for development was yet to be determined. On the B-BBEE guidelines for proposals DPE had settled for a minimum of 70% compliance on equity and sharing the benefits with the community.

Moving on to properties for development, she outlined and gave details on the earmarked properties as follows:
Johannesburg: New Town Project. She explained that this property was between the railway tracks leading to the city. The development framework was developed in a partnership with the City of Johannesburg. The project would see the building of commercial houses, a cultural village, and a gateway to the CBD (central business district).

Johannesburg: International Airport. On this property, she informed the Committee that the property strategy framework had been completed and transactions were being discussed with the Airports Company of South Africa (ACSA). The strategy focused on integrated development involving South African Airways (SAA) who owned 125 hectares of land and Denel with 145 hectares. She informed the Committee that planning was difficult when it came to Denel in that the value of their land was about R600 million, but the cost of shifting/relocating came to about R1 billion. Yet the plan for new runways passed through Denel land. Negotiations between ACSA and Denel were underway and DPE wanted to maximise the potential for agreement and actualisation of the deal. This plan also was premised on the centrality of Johannesburg International Airport as an international and regional freight and passenger gateway with future projection of 13 million passenger capacity for 2010 to 2015.

Johannesburg: Kaserne/City-Deep Inland Port. The scoping study for this property had been completed. It was located to the south of the N2 and the DPE was still considering which idea to use for improving the efficiency of the inland ports, given that container demand and use were projected to double in the next ten years.

Durban: Non-port related sites. She pointed out the NRM projects and Victorian embankment was under way.

East London CBD. She informed the Committee that the development framework had been completed and that in this area, transfer of land and property was under way to the local council and the Buffalo City Development Agency.

Port Elizabeth Harbour. The business development case for relocation and harbour development had been completed. She pointed out that Transnet Capital Projects would take a decision by end of July while business cases for manganese ore and fuel reserves were being reviewed.

Cape Town- Culomborg- Black River. On Cape Town properties, she informed the Committee that properties for development had been identified and that negotiations on development and infrastructure were underway. She pointed out that serious discussions and negotiations on non-core assets were underway. Given the demand for land on the Foreshore, the DPE had appointed a project manager to handle issues of bulk infrastructure and wage negotiations.

To end the presentation, she outlined the property development vehicle component of the project. This entailed the coordination of all key property projects under one umbrella. To this end, a model had been developed but was still under consideration. The model was anchored on the principles of asset management, development management, property management and compliance management. It was premised on institutional arrangements that would promote a decision making process that would be fair, transparent and certain. In addition the properties were to be commercially viable, sustainable with strong public sector participation and oversight and representation. They also were to avoid duplication of existing public sector SOE capacities. They were to play a positive role in the overall transformation of society.

Discussion

The Chair congratulated the DPE on starting a process that was long overdue.

Mr P Hendrickse (ANC) was not clear on the reason why the state was involved in property development and who determined what property to sell.

Another ANC member commented on the need for clarity on policy issues as the presentation had given the impression that some decisions had been made even when policy had not yet been approved. Concern was raised that a limited number of people would benefit from the property disposal process. Did individual SOEs have the power to dispose of assets on their own outside the SPVs?

Mr C Wang (ANC) wanted to know the maximum bonus points one could gather.

Mr B Kholwane (ANC) raised concerns about transformation and equity and asked how the DPE was handling this to ensure that previously disadvantaged people would benefit. He was also concerned that the wrong people might benefit when the programme was implemented in detail. Parliament had to take a stand on this and he urged the Committee to check the end result to see who benefited, how many were women and the impact on women, children and the general community.

The Chair asked what criteria were used to make a distinction between core and non-core assets.

Ms Richardson stated that development properties should be profitable, viable and a sound model for transforming society within the broader framework of equity goals. She expressed concern on the issues of equity and B-BBEE in the disposal process. She assured the Committee that the DPE was aware of the concerns and would work to realise the goals of equity and maximum benefit for local people.

She was unsure of the number of maximum points and would revert to the Committee with the correct figure.

On the power of SOEs to dispose of property, she explained they had the power to sell property as long as the value was below R750 000. Anything above this would require permission from the Minister.

The key concept in distinguishing between core and non-core assets was the commercial and non-commercial benefit of the asset. In this case commercial viability was taken to mean a property with a specific income stream attached to it. Some had long-term leases attached to them and were being used to generate income. Non-commercial assets were properties that were land locked, badly located and without income streams.

She concluded by emphasising that the whole Property Development Framework was about social and economic development, urban regeneration and urban renewal. The DPE was also working towards social housing and broader transformation goals to bring the poor more opportunities.

The Chair said the Committee was confident that the programme would be a success.

The meeting was adjourned.

 

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