Committee Report on Department Annual Report, Committee Report on Public Sector Reform Course; SAA Bill: informal discussion
Public Enterprises
15 November 2006
Meeting Summary
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Meeting report
PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
15 November 2006
COMMITTEE REPORT ON DEPARTMENT ANNUAL REPORT, COMMITTEE REPORT ON PUBLIC SECTOR
REFORM COURSE; SOUTH AFRICAN AIRWAYS BILL: INFORMAL DISCUSSION
Chairperson: Mr Y Carrim (ANC)
Relevant documents:
Committee Report on Annual Reports of Department of
Public Enterprises and State-Owned Enterprises (Alexkor, Denel, Eskom, South
African Airways, South African Forestry Company Ltd and Transnet)
Committee Report
on Public Sector Reform course held in Australia and New Zealand
South African Airways Bill
[B35-2006]
SUMMARY
The Committee adopted its report on the Annual Reports of the Department of
Public Enterprises and the various State-Owned Enterprises. The report provided
an assessment of the Department and the SOEs' Annual Report presentations and
the Committee’s response to these. The Committee Report requested SOEs submit
overviews of their Annual Reports seven days before the actual presentations to
assist Members in preparation. Only two Board Chairpersons attended the
presentations. In future, the Committee would not consider an SOE Annual Report
if the Board Chairperson or another non-executive Board member was not present.
A Committee Report on a Public Sector Reform Course held in Australia and New
Zealand was adopted.
The Committee informally discussed the pending South African Airways Bill which
dealt with the transfer of South African Airways shares and assets to the
Department of Public Enterprises from Transnet.
MINUTES
Committee Report on Department’s and State Owned Enterprises’ Annual Reports
The Chairperson outlined the key points of the Report. The report contained
a summary of an assessment of the performance of the Department and State Owned
Enterprises (SOEs). The recovery of Transnet over the past two years was
noteworthy. The Committee requested that SOEs spell out their anti-corruption
strategies more clearly in future Annual Report Briefings. The Committee also
requested provision of independent evaluations of SOE performance such as
customer surveys in future. In terms of section 49 of the PFMA, it is the Board
of an SOE that is ultimately accountable for an SOE. The Committee will insist
that Board chairpersons should attend the briefings together with the CEOs of
SOEs.
Committee Report on Public Sector Reform Course held in Australia and New
Zealand
A Committee Report on the executive short course on public sector reform
held recently in Australia and New Zealand was also considered. Public sector
reform was advocated to promote effectiveness, productivity and profitability
amongst SOEs. Both reports were adopted by the Committee. A brief preliminary
overview of the South African Airways Bill to be tabled was requested.
South African Airways Bill: informal discussion
Mr P Hendrickse (ANC) commented that the Bill appeared to contain two key
objectives namely the transfer of SAA to the Department of Public Enterprises
and the public listing of South African Airways (SAA). Certain questions
remained around the notion of the proposed public listing of the airline that
the Committee could direct towards the Department in due course.
The listing would entail certain implications that would have to be
interrogated. For example, the future of the airline as a national carrier
would be a concern. Routing decisions could be based on considerations other
than financial. Sound reasons would have to exist to justify foreign direct
investment into SAA. Foreign interests would have to be assured of meaningful
returns on investments prior to a commitment of funds. The Committee had to
ensure that legislation was created to cater for future likely scenarios and to
avoid unintended consequences. For example, bonus payments made to previous
executives were now the subject of an inquiry. Such payments had to have
received Board and executive approval at the time.
Mr J Stephens (DA) noted that the deal with SAA envisaged the transfer of SAA
shares and assets to the state. However, the state was going to be paid in the
process that appeared contradictory as the state should be regarded as the
purchaser. Such a discrepancy drew attention to the structure of the Bill.
Private companies possessed a limit on the number of shares that could be
issued and restrictions were placed on the sale of such shares. The shares of a
public company were freely transferable and could be listed on the stock
exchange. Investment banks tended to invest in public companies to avoid any
restrictions on the sale of shares. Share purchases by investment banks
remained the optimal form of finance for public companies as no interest
repayments accrued and the capital could be used exclusively to expand
production levels and drive profitability. A certain percentage of a company’s
shares could be traded on the open market. The danger for SAA lay in a
competitor becoming a controlling shareholder through bulk share purchases.
Such a scenario should be avoided as competition in the domestic airline market
would be adversely affected. The SAA majority shareholding should remain in
South Africa. The Bill could be intended as a preparatory step towards the
re-capitalisation of SAA.
The Chairperson proposed that the committee researcher compile a summary of the
Bill to provide to Members in January 2007. Certain questions such as the
possible listing of SAA could be considered.
Mr Stephens reminded Members of the distinction between listing on the stock
exchange and going public where no listing occurred. Private companies were
restricted on the sale of shares and in terms of the number of shareholders
allowed.
The Chairperson noted that the researcher would examine whether a Bill was
required in terms of the Public Finance Management Act prior to the listing of
a public entity. The potential benefits of listing for SAA would also be
examined.
Mr Hendrickse recalled that Transnet had loaned SAA R4 billion and R1.6 billion
had been repaid. Shares would now be issued to Transnet and he speculated what
the benefits to Transnet would be and whether it could sell those shares at
some point.
Mr Stephens pointed out that Transnet already owned shares in SAA. Loans issued
by banks to companies tended to be converted into share capital if repayments
could not be made. Such a move would increase the shareholding in the company.
The company could repurchase some shares to reduce current liabilities.
Mr S Kholwane (ANC) stated that the proposed exchange of shares between SAA and
Transnet could be construed as repayment of a loan but was described in a
different way.
The Chairperson noted that public hearings on the Bill would be held in 2007.
The meeting was adjourned.
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