‘No wholesale selloff but we need private capital’
Ramaphosa clarifies ‘privatisation’ stance as collapsed SAA deal exposes ideological rift
● The government remains committed to finding private sector equity partners to turn around ailing state-owned enterprises, says President Cyril Ramaphosa, warning that “the fiscus is no longer able to continuously bail out struggling SOEs”.
In comments to the Sunday Times in the same week that the deal to sell 51% of SAA to the Takatso consortium collapsed, Ramaphosa fired a broadside at critics who accuse the government of planning to sell off SOEs to the private sector.
“Government commitment remains in securing strategic partnership in the recovery of ailing SOEs,” Ramaphosa said through his spokesperson, Vincent Magwenya.
“There is still an intention, more broadly speaking, to have strategic partners to work together with government in the process of turning around struggling and ailing SOEs. What has never been the policy or an intention is what people who distort this process will say, that there is an intention just out of the blue to go into a wholesale selloff of state assets,” he said.
The termination of the SAA deal, in which the Takatso consortium was paying R51 and stumping up R3bn to recapitalise the ailing airline, was described in a cabinet statement as being by “mutual agreement”. It came after the valuation of the airline, set at R2.4bn during the Covid-19 lockdown, rose to a current total of R6.5bn for the airline and its large portfolio of properties.
Although the change in the valuation has been put forward as the principal reason for scrapping the deal, the transaction also exposed ideological differences within the alliance of the ANC, SACP and Cosatu, with the latter two expressing strong opposition to privatisation. Similar reservations are shared by sections within the ANC itself.
Cosatu said it would request a meeting with the government to discuss the future of the airline and that of its employees. The SACP said it remained opposed to the privatisation of SAA.
“Both within the alliance and publicly, the SACP fought against the agenda to privatise SAA,” said general secretary Solly Mapaila in a statement.
The battle over selling off a stake in SAA comes as the government increasingly turns to the private sector to help revive the faltering performances of South Africa’s two biggest SOEs, Eskom and Transnet, which have had a disastrous impact on the economy.
Parliament this week passed amendments to the Electricity Regulation Act, which are designed to end Eskom’s monopoly on electricity generation and distribution. Also in the pipeline is the opening of third-party access to Transnet’s rail network next month, announced at the African Mining Indaba earlier this year.
The move could go some way to address rail inefficiencies that cost the economy up to R353bn in 2022, according to GAIN, a boutique consultancy that focuses on contract research of freight transport.
In his budget speech, finance minister Enoch Godongwana stopped short of offering loss-making Transnet a bailout. Instead, he announced a R47bn guarantee for the company, but with conditions that include allowing third-party access to rail, as well as securing private partners to upgrade infrastructure, equipment and technology at Durban’s harbour.
Ramaphosa hinted that involving the private sector could no longer be avoided.
“In a fiscally pressured environment where the fiscus is no longer able to continuously bail out struggling SOEs, it is important for government to look into strategic partnerships with the private sector who will bring their operational and management expertise, along with the required capital injection that will then revive the fortunes of those SOEs,” he told the Sunday Times through his spokesperson.
“The president,” said Magwenya, “would have still preferred to have SAA secure a strategic partner that will bring operational and management expertise but also bring a capital injection into the operations … to ensure the sustainability and future profitability of the airline, which would have been good for the fiscus. The task is now with the board to ensure that the airline remains sustainable into the future. Should there be a need for a partner, the board will advise the president. For now it will continue as a state entity.”
As the SAA-Takatso deal collapsed this week, details of the behind-the-scenes drama emerged.
Takatso chair Tshepo Mahloele told Business Times that the consortium disputed the argument offered by some in the government that SAA had been “undervalued”.
An ANC leader privy to behind-the-scenes conversations said there were no disagreements about the need for private business participation in SOEs, but that the SAA deal was unique.
“In the case of SAA I think it was generally agreed that it must be sold. There’s already a partner in Transnet at the port. There was also no pushback on that. We agree because they have to be brought in to assist with skillset and cash as well. The only issue was with SAA because they didn’t have the expertise.”
Gordhan’s announcement that the deal had fallen through came after months of fighting with the National Assembly’s portfolio committee on public enterprises, which was demanding answers from him following claims from the former director-general of public enterprises, Kgathatso Tlhakudi, that the deal was tainted.
The Sunday Times can reveal that Takatso asked the department of public enterprises for a mutually agreed termination of the deal because of changes in its structure. This followed a new valuation that Letsema Consulting conducted on SAA assets last year, contained in a report submitted to the department in January.
SAA went into business rescue in late 2019, just before the Covid pandemic. Insiders at Takatso believe the dramatic surge in the airline’s valuation reflected in the Letsema report is unrealistic.
Critics of the deal have previously said the airline was undervalued when Takatso entered the original agreement with public enterprises.
Tlhakudi, adamant the deal was fishy, denied signing any documents relating to it. However, documents have emerged that reveal Tlhakudi co-signed a memorandum prepared by the then deputy DG Jacky Molisane on April 7 2021. His signature also appears on the letter written to Sipho Makhubela, CEO of Harith, one of the consortium partners in Takatso, advising him that public enterprises was pleased with Harith’s expression of interest and that the deal was moving to the next round of due diligence.
When the Sunday Times approached Tlhakudi for comment regarding his signature on the two documents, he insisted that he had no knowledge of them. He demanded to physically see the copies but then failed to offer a time and place to do so.
In a letter to the department, Takatso director Lizeka Matshekga said: “With the time it has taken to date, for reasons outside the control of the parties, the change in market dynamics have led to Takatso reconsidering its position. It is on this basis that Takatso believes that it is mutually beneficial to both parties to terminate the SPA [sale and purchase agreement] by mutual consent.
“It has become apparent that the revision of the transaction structure has added more complexities which impact on the time in which the transaction will meet conditions precedent … [and] thus the timely implementation of the transaction,” Matshekga wrote.
It is important for government to look into strategic partnerships with the private sector who will bring operational and management expertise, along with the required capital injection President Cyril Ramaphosa