Committee Report on Department Annual Report, Committee Report on Public Sector Reform Course; SAA Bill: informal discussion

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Public Enterprises

14 November 2006
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Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE

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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