Algoa Bay, Eastern Cape Province
Algoa Bay, Eastern Cape Province
Privitization Sector ProfileAlthough it has taken almost two years for the government to commit itself to the sale of state-owned enterprises, the process is well underway with already three privatization's completed. These are the sale of six South African Broadcasting Corporation (SABC) radio stations and 30-percent of telecommunications company, Telkom, and a third to Sun Air Airlines, the most recent sale which went to the Rethabile/Comair group. Rethabile is a black empowerment group which partnered with local airline, Comair. The Minister of Public Enterprises has committed herself to the full or partial sale of seven parastatals this year, the remaining five (SAFCOL, Alexkor, Aventura, Autonet and Airports Company) are only likely to be sold next year. At this stage the Airports Company is the only one that is close to appointing advisors. This cable, sourced from a recent survey on privatization1, discusses the various parastatals in line for privatization and their different stages in the process.
Eskom is South Africa's largest corporation with assets valued at R53.8-billion/USD11.95-billion. Its privatization is though being strongly resisted by the trade union movement, so much so that to date Eskom executives have ruled out an imminent departure from its current status. They point out that the group operates effectively on private sector principles while at the same time meeting its ambitious social obligations.
Recent statistics indicate that Eskom has electrified well over 900,000 homes since 1994 and is on track to achieve its 1.75-million target by the year 2000. It has achieved a real 17-percent reduction in the price of electricity, making South African electricity the cheapest in the world. A further 15-percent real cut is promised until 2000. Net income surged from R2.6-billion/USD0.57-billion in 1995 to R3.1-billion/USD0.69-billion in 1996 on a 9-percent rise in sales to R18.7-billion/USD4.15-billion.2
Despite these statistics, analysts warn that recent developments may require eskom management to review its position on privatization. Eskom plans to grow its operation regionally - a programme that would require a costly expansion of the electricity grid.
Eskom's ability to self-finance the electrification drive could also be impeded by proposed legislation forcing it to pay taxes and dividends. The government is expected to soon decide on a bill and Eskom has warned that, depending on the level of taxation and dividend, the pricing structure and the roll out numbers for its electrification plan could be reviewed.
Telkom became the first parastatal to be privatized when it received R5.6-billion/USD1.24-billion for a 30-percent stake that was sold to U.S. company SBC Communications and Telekom Malaysia. The strategic equity partners are also committed to doubling the telephone network over five years.
The government had to make a number of major concessions to attract the deal which included a five-year monopoly on mainstream services and strong management control for the equity partners. In July of 1997 Telkom announced that it lifted attributable profit in 1996/97 by 63-percent to R1.95-billion/USD0.43-billion on a 23-percent rise in revenue to R16.3-billion/USD3.62-billion. Interest-bearing debt was also down from R8.7-billion/USD1.93-billion to R7.2-billion/USD1.6-billion.3
These results which are said to be beyond expectations, have enabled the group to drastically reduce the forecast costs of its network expansion programme from r53-billion/usd11.7-billion to R40-billion/USD8.89-billion.
Regulation Sector ProfileEssential to the success of the new South African telecom sector was the establishment of a new regulatory regime to oversee what will eventually become a fully liberalized market. Under the new law the South Africa Telecommunications Regulatory Authority (SATRA) is charged with oversight of the sector and the development of specific regulation required for the implementation of the law. The Authority, however, remains fairly closely tied to the Ministry of Posts, Telecommunications and Broadcasting and, perhaps, is not as independent as many of the regulatory bodies that are emerging in conjunction with sector liberalization in other developing economies.4
SATRA will be led by a council appointed by the President on the basis of recommendations made by Parliament. A Chief Executive, responsible for day to day operations, will be appointed by the Minister of Posts, Telecommunications and Broadcasting. The Chief Executive will have responsibility for staffing the Authority.
SATRA's primary areas of responsibility are5:
á issuing licenses
á developing guidelines for interconnection and authorizing interconnection agreements
when liberalization takes effect
á equipment type approval
á management of the national radio spectrum
á tariff setting
Although given long-term responsibility for tariff setting, SATRA does not have responsibility for setting Telkom S.A.'s tariffs during the period of exclusivity. This task is reserved for the Ministry, which will set three year tariff guidelines for Telkom S.A.
In addition, licensing fees will not be used as the direct source of operational funding for SATRA. In most emerging markets engaged in sector reform, the direct funding of communications authorities through licensing fees is viewed as a key factor in establishing and maintaining the independence of the regulatory authority. In South Africa, however, license fees (along with the additional fees discussed below) will go directly to the national account. Rather than being directly based on funds received through licensing, the operational budget for SATRA will be determined on an annual basis by the Parliament.6
The law also calls for the creation of a separate body, the Universal Service Agency, which will be responsible for the implementation of the universal service fund. This fund will be endowed by fees paid by all license holders. The creation of a separate agency for this function is unique to South Africa.
The fund will be used to make available subsidies to those providers obligated to extend network coverage to those areas and communities currently not adequately served. In addition, the fund will be used to subsidize those users unable to afford telecommunications services.
The Universal Service Agency will be responsible for making recommendations to the Minister regarding expanding access, monitoring progress towards universal access and managing the universal service fund. However, SATRA will maintain responsibility for determining the formula under which license holders will contribute to the fund.
A second fund to be created under the new law is the Human Resources Fund. Moneys collected in this fund will be used to promote education, research and development and training with the objective of substantially increasing the number of skilled people available for employment within the sector. This fund was established as a means of redress past discrimination in both education and employment in accordance with objectives of the Reconstruction and Development Program, the African National Congress-led Unity Government's blueprint for a "new South Africa".
Similar to the universal service fund, the Human Resources Fund will be funded indirectly through fees paid by all license holders. Again, the formula for contributing to the fund will be determined by SATRA. The fund itself, however, will be managed by the Department of Communications within the Ministry.7
Each of the above agencies will be answerable to the Ministry of Posts, Telecommunications and Broadcasting.
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Author: Felix R. Klimpacher
Last Update: April 29, 1998
This Page's URL is: http://gurukul.ucc.american.edu/initeb/fklimpa/southafrica/privpage.html