Investment in state-owned firms beckons
Ramaphosa, Brown signal relaxing of bars to private sector partnerships, writes Carol Paton
AFTER a few months’ respite, the old debate has been taken off the shelf again: what to do about the shape and size of stateowned companies?
Politicians and their advisers have made some telling comments. Deputy President Cyril Ramaphosa, head of an interministerial committee that will make recommendations on the future of state-owned companies, has said that “everything is open to being looked at”.
“We are seriously engaged in the process of looking at how best state-owned companies can operate. China has been able to list portions of their state-owned companies on the stock exchange. China has had a great deal of success and we can learn from it,” he told the National Council of Provinces this month.
The China model is under serious contemplation in government circles and Mr Ramaphosa examined it in some detail during his visit there in July.
Under new guidelines issued by the Chinese Communist Party’s Central Committee, “mixed ownership” will be encouraged by drawing in “various investors” to diversify share ownership. State firms are also now encouraged to restructure to pave the way for stock listings.
Public Enterprises Minister Lynne Brown, who was also on the trip, has said, “In the state-owned company reform process, we need to create the interface for private sector participation in stateowned companies … there will be a much more concentrated, determined private sector involvement in state-owned companies.”
Although Ms Brown is frequently quoted as saying the governing party does not support privatisation, it is becoming clear what she means is wholesale or majority-stake sale, not smaller amounts of private investment.
Ms Brown and her directorgeneral, Matsietsi Mokholo, have spoken approvingly of the exam- ple of state-owned Denel, which effected a successful turnaround in the 2000s. While the holding company remains 100% stateowned, the divisions took on equity partners, raising capital and gaining access to technology.
Ms Brown had been expected to elaborate on the Denel model at the African National Congress (ANC) and Cabinet July lekgotla in preparation for a piece of overarching legislation that she is preparing on the shareholder model for state-owned companies. Those discussions did not take place — an indication it remains a difficult issue in the ANC alliance — so the process has been somewhat stalled, but her recent comments are intended to remind us not to be too surprised when a new idea finally makes it into the public arena.
Ms Brown is also a member of the interministerial committee that is taking its direction from two compatible sources.
The first is a mandate from the ANC lekgotla last year in which it was agreed that the sale of non-majority stakes in state-owned companies be explored.
The second is the 2013 Presidential Review Commission report into state-owned companies that recommended the par- tial listing of some, the privatisation of others and the establishment of an overarching authority to co-ordinate the state’s big infrastructure-related companies. The commission report, which has still not been released, has undergone a revival and is part of the deliberations of Mr Ramaphosa’s committee.
Within this developing stream of thought, Eskom still stands out as a problem.
Partially to privatise or list a state monopoly can result in the creation of a private-public state monopoly in which the problems of monopoly pricing become further magnified. To restructure the company and allow the introduction of competition would be a more important first step than raising capital through private sector participation.
University of Cape Town pro- fessor Anton Eberhard, adviser to Mr Ramaphosa, says the war room has commissioned research to explore a new structure for Eskom. In a presentation to the annual Nedlac summit a week ago, Prof Eberhard argued that above all, Eskom should be vertically disaggregated as international experience shows this is the best way to bring efficiencies into a statedominated energy sector.
He argues for the splitting of Eskom into a generation business and a grid management business. Neither would be privatised and both would remain 100% stateowned under Eskom Holdings.
The result would be two-fold: to make Eskom a more manageable and efficient company, and to develop Eskom Generation into a competitor with independent power producers from the private sector, both selling power to Eskom Distribution.
“Building and operating power stations is a very different business to building and operating wires. The beauty of this idea is that eventually, you create a separate state-owned generating company on equal terms to the private sector to contract power to the wires business,” he says.
Vertical disaggregation is an advance on the idea of the Independent System Market Operator Bill, which would also split generation and distribution but into two separate state-owned companies. The biggest problem with this approach right now is that, given Eskom’s weak state, splitting the company would make it even less financially stable.
More than 90 countries have restructured their energy sector, many of them through vertical disaggregation. As the debate about the future of state-owned companies has ebbed and flowed since the early days of SA’s democracy, it might be optimistic to believe that it will reach a conclusion some time soon. At least, though, some nuances are entering the conversation.
Prof argues for the splitting of Eskom into a generation business and a grid management business