Presentation to the Portfolio Committee on Public Enterprises

1
Presentation to the Portfolio Committee on
Public Enterprises

• Presenter Malixole Gantsho
• Venue Cape Town
• Date 19 August 2002

2
DPE - Background

• The Office for Public Enterprises was originally
  established in 1994 as a Schedule two
  organisation. At the time the primary objective
  of the Office was to champion and direct the
  restructuring of State Owned Enterprises (SOEs)
  to ensure optimum economic and development
  impact.
• On 25 July 1995 the Ministry of Public
  Enterprises, issued a "Discussion Document by the
  GNU on the Consultative and Implementation
  Framework for the Restructuring of State Assets".
  
• HSBC was governments overall restructuring
  adviser from October 1996 to October 1999, with
  various advisors involvement at a specific
  transaction level.
• Their mandate allowed various government
  departments to draw heavily (transfer skills) on
  their expertise and resources at a fee.

3
DPE - Background

• At a Government Lekgotla in November 1999, a
  decision was taken to accelerate the
  restructuring of State Owned Enterprises (SOEs).
• In 1999 the Minister of Public Enterprises made a
  representation for the upgrading and
  re-designation of the Department of Public
  Enterprises as a schedule I National department,
  from being a schedule III Office.
• This necessitated the need to source sector
  specific skills in energy, telecommunications,
  defence and the transport sector.
• Furthermore, the department also focused on
  non-core assets and specialist services where
  transaction are managed within the restructuring
  programme of the department.
• In August 2000 Government through the Department
  of Public Enterprises unveiled its restructuring
  of state owned enterprises framework Policy
  Framework Accelerated Agenda for the
  Restructuring of State Owned Enterprises
• This framework forms the basis of the South
  African Governments restructuring programme.

4
DPE - Vision

• The Department feels that it is important to have
  one common, shared understanding of where it is
  going as an organisation. That a clear vision
  would provide the rallying cry and spirit of
  camaraderie needed in order to enable it to
  deliver on its mandate. The Department has
  formulated the following organisational vision to
  guide it through the next four years
• Restructured SOEs in a globally competitive
  environment promoting economic growth and a
  better life for all.
• New Vision (confirmed)
•  
• Restructured State Owned Enterprises, in a
  globally competitive environment, promoting
  economic growth and a better life for all.
•  
•  
•  
•  
•  

5
DPE - Mission

• The vision can only be accomplished if it is
  translated into actions that people can engage in
  and having done so can be measured in terms of
  how well their efforts contributed towards
  achieving the vision. Therefore the next level of
  operation of the vision is the mission. The
  Department has formulated the following
  organisational mission to guide it through the
  next four years
• To direct and manage the accelerated
  restructuring of SOEs to maximise shareholder
  value.
•  
• New Mission (revised)
•  
• Maximize shareholder value, to support the
  achievement of economic
• and social objectives of Government.
•  
•  
•  

6
DPEs Mandate

• Accelerate the restructuring agenda of SOEs
• Maximising shareholder value
• Promoting macro-economic growth and competition
• Promote wider participation in the economy (IPOs
  retail offer for HDIs) and restructuring (BEE)
• Mobilise private capital and expertise
• Ensure that SOEs are efficient, competitive and
  promote service delivery
• Monitor and measure performance
• Contribute to lower public sector borrowing
• Mitigate country risk associated with implicit
  contingent liabilities and also those that are
  explicit (guarantees)

7
Social and Economic Impact
8
INSTITUTIONAL FRAMEWORK
INSTITUTIONAL FRAMEWORK
NEDLAC
NFA
PARLIAMENT
Other
9
DPE Organisational Chart
Sivi Gounden Director-General
Jeff Radebe Minister
Eugene Mokeyane DDG IPO Office
Ike Nxedlana Chief Financial Officer Finanical Man
agement
Nonkululeko Msomi Chief Director Performance
Monitoring Benchmarking
Malixole Gantsho DDG Restructuring
Nthabiseng Seperepere Director Alternative
Service Delivery
Moretlo Mokuele Chief Director Corporate Services
10
Executive Summary - Biography

• Jeffrey Radebe, MP, Minister of Public
  Enterprises
• Minister Radebe is the political head of the
  Department of Public Enterprises. He holds
  advanced international law degrees and was an
  awarded an honorary Doctrate in Humane Letters by
  University of Chicago.
• His development and thinking is insipired by
  writings of progressive thinkers like Karl Marx,
  Angela Davis, Albert Luthuli.He is currently
  serving his second term as a cabinet Minister,
  and was previously Minister of Public Works. His
  long standing political history and activism in
  liberation struggle of our country contributed in
  his vision and commitment to the cause of the
  people. It is this experience that inspire his
  work in his current potfolio in ensuring that the
  plight of State Enterprises contributes to the
  socio- economic developments in our society.

11
Dr Sivi Gounden Director General
Dr Sivi Gounden In April 1999, he was appointed
Director General of the newly established
Department of Public Enterprises. He holds a PhD
Engeneering from Univesity of Natal. He has
extensive experience in developmental projects
through public sector procurement. His previous
position at Department of Public Works saw him
introducing the concept of Public Private
Partnership for Public sector procurement and he
also contributed to governments green paper on
Public Sector Procurement in 1996.
12
BACKGROUND OVERVIEWWHY RESTRUCTURING

• Macro- economic benefits reduction of
  Governments borrowing requirement, contingent
  liabilities (guarantees) and lower interest rates
• Ensure wider active participation in the South
  African economy
• Enhancing dynamism competitiveness thereby
  enhancing the efficiency of the various SOEs
• Unlocking Private Sector led growth
• Free resources for social services and
  infrastructure spending
• Consumers to benefit from lower prices and higher
  quality services brought by expanded competition
• A catalyst for Foreign Direct Investment (FDI)
  a.k.a brick and mortar
• Accessing globally competitive technology
• Development of Capital Markets

13
Forms of Restructuring

• Concessions (BOT)
• Strategic Equity Partner (SEP)
• Strategic Management Partner (SMP)
• Public Private Partnership (PPP)
• Privatisation (Full or Partial)
• Securitisation
• Equity Linked Products (Convertibles)
• Floatation of SOEs (Initial and Secondary)

14
Overview of Restructuring 2001-2002

• Government remains strongly committed to
  restructuring
• of state owned enterprises as an integral part of
  our
• economic and social transformation.
• Commitments Made to the Portfolio Committee Last
  Year
• 2002/2003 represents acceleration in the
  implementation of SOE
• restructuring.
• Need for the alignment of Portfolio Committee
  program with
• Departmental program to ensure constructive
  engagement prior to implementation.
• Commitment to avail Ministry and Departmental
  resources to support Portfolio Committee program.

15
Overview of Restructuring 2001-2002

• Commitments Made to the Portfolio Committee Last
  Year (Cont)
• Finalization of sectoral policies.
• Finalisation of critical legislation
• Interaction with organised labour on
  restructuring initiative
• Careful review of current shareholder compacts
  and development of future shareholder compacts
  2002/2002 represents acceleration in the
  implementation of SOE restructuring

16
Overview of Restructuring 2001-2002

• Progress Made 2001 2002
• Significant progress was made in key sectoral
  polices, such as telecommunications, energy,
  mining and ports. These policies and legal
  frameworks lay the basis for accelerated
  restructuring this year and beyond.
• Last year saw also a concentrated emphasis on
  non-core assets, such as Aventura, Alexcor, and
  Air Chefs.
• Significant progress was made also in developing
  a culture of corporate governance in SOEs through
  strengthening of boards, conclusion of
  shareholder compacts, and a framework for
  managing shareholder interests.

17
Overview of Restructuring 2001-2002

• Progress Made 2001 2002 (continued)
• Significant progress was made in key sectoral
  polices, such as telecommunications, energy,
  mining and ports. These policies and legal
  frameworks lay the basis for accelerated
  restructuring this year and beyond.
• Last year saw also a concentrated emphasis on
  non-core assets, such as Aventura, Alexcor, and
  Air Chefs.
• Significant progress was made also in developing
  a culture of corporate governance in SOEs through
  strengthening of boards, conclusion of
  shareholder compacts, and a framework for
  managing shareholder interests.

18
Overview of Restructuring 2001-2002

• Progress Made 2001 2002 (continued)
• We have clearly demonstrated our commitment to
  engage and consult with all relevant stakeholders
  to build consensus and support for restructuring
  initiatives.
• We have strengthened the functioning of the NFA,
  which has seen greater participation by labor in
  the development of restructuring models for
  energy, (rail) transport and defense.
• DPE and SOEs have continually provided briefings
  to the portfolio and select committees to ensure
  a common understanding of restructuring
  challenges and for Parliament to effectively
  fulfill its oversight role.

19
Overview of Restructuring 2001-2002

• Progress Made 2001 2002 (continued)
• We have continued to enhance our internal
  capacity to manage
• the complex challenges of restructuring.
• For the past financial year, the Department
  achieved an unqualified audit report, which
  reflects prudent financial management systems and
  controls, in compliance with the PFMA.
• In spite of major difficulties and challenges in
  2001, including volatile financial markets and a
  global economic slowdown, especially in airline
  and telecom sectors, governments restructuring
  program remains on track and moving ahead.

20
Key Challenges 2002-2003

• Continue to make a meaningful contribution to
  governments macroeconomic objectives
• Continuous engagement with labor
• Unfavorable market conditions
• Communicating restructuring program to the wider
  South African community
• Achieving meaningful Black Economic Empowerment

21
KEY PROJECTS FOR 2002 - 2003

• Restructuring
• Initial Public Offering (IPO)
• Performance Monitoring
• Strategic Analysis
• Alternative Service Delivery
• Communications
• International Relations
• Finance
• Non-Core Restructuring
• Summary of Challenges and Proposed Way Forward

22
Restructuring of State Owned Enterprises
Overview

• Introduction
• Energy
• Telecommunications
• M-Cell
• Second National Operator (SNO)
• Defence
• Transport
• Forestry
• Mining Alexkor
• Aventura
• Non-Core Restructuring

23
Introduction

• Purpose Statement of Restructuring Branch
• To co-ordinate development and accelerate the
  execution of restructuring plans for state owned
  enterprises in line with the Departments vision
• Key Objectives
• Coordinate, Develop and Implement
  Restructuring and Transaction Plans
• Promote Wider Economic Participation In the SA
  Economy
• Realize Proceeds from Restructuring
  Transactions
• Enhance Global Competitiveness of SOEs
• Promote Long Term Sustainable Employment
• Ensure Stakeholder Support for Restructuring
  Plans
• Safeguard the Integrity and Transparency of
  the Restructuring Process
• Key Functions and Activities
• Support services Legal Services Financial
  Modeling and Risk Analysis Projects and
  Transaction Management
• Sectors Energy Mining Hotels and Resorts
  Defence Forestry
• Telecommunications Non-Core Assets
• Core Values
• Honesty/integrity Trust Professionalism
  Teamwork Respect Commitment Transparency
  Accountability Effectiveness/efficiency
  Discipline.

24
Energy Sector
Global Trends

• The electricity sector of most countries in the
  world are being
• driven by
• The desire to improve allocative and operational
  efficiencies
• The desire to widen customer choice
• Technological change
• Financing needs and markets
• Environmental pressures
• The particular needs of the country

25
Energy Sector (cont.)
Progress to Date

• 2002
• Incorporation of Eskom as a company in terms of
  the Eskom Conversion Act - Act No. 13 of 2001
• Appointment of new Board of Directors by end of
  2001.
• Generation, Transmission and Distribution set up
  as operating divisions, as a result of the Act
• Ongoing restructuring of the Eskom Enterprises of
  Eskom - process of identifying a SEP for Rotek
  underway to complete 2002
• Technical team comprised of DPE, DME, DPLG, NER,
  Eskom, SALGA set up and submitted
  recommendations on key issues regarding
  restructuring of the energy sector.

26
Energy Sector (Cont.)
2002 2003

• Implement Generation, Transmission and
  Distribution as wholly owned subsidiaries of
  Eskom
• Ringfencing of Distribution Business
  Distribution moves out of Eskom Holdings into a
  separate EDI holdings company (Dependent on EDI
  process led by DME). Legal documentation setting
  up EDI Holdings in process of cabinet approval
• Commence commissioning and sale of 10 of Eskoms
  capacity with BEE focus. Introduction of 20 SEP
  stake to commence, with focus of foreign direct
  investment .
• Further planning and development of the market
  structure will be dependent on prevailing
  conditions
• This is subject to the development of an
  appropriate regulatory framework and market rules
  being in place.
• Multi Market Model is currently being developed

27
Telecommunications Sector (cont.)
M-Cell

• Our objectives are
• to encourage the development of a strong local
  telecommunications sector with strong growth
  prospects and high quality service, and
• to maximise value through an efficient and
  orderly sale process
• The disposal of Transnets stake in M-Cell is an
  important part of the programme of restructuring
  of Government ownership in the telecommunications
  sector
• In July 2000 Government sold 75 million shares to
  Johnnic Communications _at_ R33 per share resulting
  in Transnet holding 24 of M-Cell
• The detailed preparatory work is now complete for
  the next phase of the disposal to be implemented

28
Telecommunications Sector (cont.)
M-Cell

• On 30 May 2001 Request for Proposal (RFP) and
  other transaction documents to suitable potential
  bidders issued
• In January 2002 the 20 Transnet M.Cell stake was
  monetized , for 18 months and taken by Ice
  Finance BV, a Dutch company, yielding USD 475
  Million. JP Morgan facilitated the transaction.
• Payments have since been transferred to Transnet
  bank account by Ice Finance BV Transnet will
  benefit from the economic performance of these
  shares during the 18 months but have hedged
  against poor performance
• Process of identification of buyer of the 20
  stake is ongoing, with intention to dispose in
  the 2002/2003 financial year.
• Government is committed to sell its strategic
  stake in M-Cell at a price that reflects the true
  market value of the stock
• Different options are now being considered.

29
Telkom IPO Report - Introduction

• SNO
• It has been agreed that there will be a 30 set
  aside for Eskom (Esi-tel) and Transnet (Transtel)
  in the SNO
• DPE has facilitated that Esi-tel and Transtel
  participation in the SNO by making
  recommendations as to the value added that these
  entities will bring to the SNO
• SOE partners set data rooms in preparation for
  due diligences
• Esi-tel and Transtel will be able to begin
  operations once the licence is issued

30
Defence Sector
Denel

• BAE Systems invited to become SEP in Denel on the
  basis of the complementary fit between the two
  broad based defence groups. Negotiations are at
  an advanced stage with BAE Systems to acquire
  significant minority stake in Denel
• Turbomeca of France invited to become a SEP for
  Denel's Airmotive division and acquire a majority
  stake .
• Negotiations currently underway with both SEPs
  with regard to shareholders agreements and
  transaction documents.
• On basis that acceptable commercial terms are
  reached, aim is to complete both transactions by
  end March 2002.
• Heads of agreement with Turbomaca signed 25 Feb
  2002

31
Transport Sector (cont.)
Transnet End State

• Government and Transnets management are
  currently of the view that Transnet should remain
  a holding company and position itself as an
  integrated transport infrastructure and logistics
  company.
• A Cabinet decision on the Transnet end state is
  expected before end March 2002. This will clarify
  the future of its divisions and subsidiaries,
  give direction to finalization of Transnet
  restructuring plans and help to coordinate
  concurrent restructuring projects.

32
Transport Sector (cont.)
Spoornet

• Establishment of Rail Safety Regulator including
  legislation by end of calendar year DoT
  (provisional)
• Adoption by Government of a restructuring model
  for Spoornets freight business in December 2001
• Spoornet to be run as an integrated freight
  company on an extended rail network
• Internal restructuring and efficiency
  improvements to be implemented
• Options for Orex to be reviewed
• Shadow incorporation of division to be performed
  to establish accountability and address
  cross-subsidization audit trails and impact

33
Transport Sector (cont.)
Ports

• Draft Establishment and separation from Transnet
  of National Ports Authority and Port Operations
  Division ( 2002)
• Establishment of Ports Regulator (March 2002)
  NDoT (provisional)
• 3 year tariff reform process started December
  2001
• Concession of some port operations to commence
  after enabling legislation has been finalised
  (Mid-2002) Ports policy was finalised in January
  2002 and is has served before Cabinet. DOT has
  been expected to publish this as far back as May
  2002
• This will be followed by new Ports legislation
  NDoT
• Consideration is being made to the fast tracking
  of the Durban Container Terminal concession, due
  to congestions at this port.
• An Economic Impact Study is underway for the
  development of a concession architecture and
  framework on the basis of which this concession
  will take place

34
Transport Sector (cont.)
Petronet

• Technical analysis on restructuring model for
  Petronet was completed in November 2001
• Implementation of policy framework for regulation
  of liquid fuel pipelines (March 2002) DME
  (provisional)
• DME engaged in finalizing liquid fuel industry
  framework
• Legislation for regulator (March 20010) - DME
  (provisional)
• Establish liquid fuel pipelines regulator (June
  2002) DME (provisional)

35
Transport Sector (cont.)
SAA

• Decision taken to reacquire SairGroup 20 stake
• Transnet has finalized negotiations and reacquire
  the Groups 20 stake in SAA at a significant
  discount translating to over R 1billion gain for
  the Group. Price for reacquisition had been
  agreed to in terms of the original shareholders
  agreement.
• Global market conditions in the airline industry
  and the financial standing of SAA will determine
  the timing of the decision to either to list SAA
  or sell minority stake to an SEP, or any other
  option.
• A Government Task Team has been set up to review
  and consider different options for the
  restructuring of SAA as well as a merger of SAA
  and SA Express, and possibly SA Airlink

36
Forestry Sector
Achievements / Progress to Date

• KwaZulu-Natal Transaction
• Legal Agreements signed by SAFCOL and Purchasing
  Consortium.
• The sale was finalized and Assets were
  transferred in October 1, 2001.
• Sale Value was R100 million
• Eastern Cape North Transaction
• Sale and transfer of assets to purchaser was
  concluded in August 2001
• Sale Value was R 17 million

37
Forestry Sector (cont.)
Future Plans

• Northern Forest Transaction Package
• The Timetable for the Transaction is confirmed.
• The Invitation to Offer was available to the
  three preferred bidders on July 6, 2001
• Formal bids received 14 September 2001
• Cabinet approved two preferred bidders in
  November 2001
• Negotiations with the bidders are underway
• The allegations of impropriety against a DPE
  official are being investigated by the PSC
• Pending these investigations, sale of shares and
  transfer of assets is anticipated before end of
  2002 fiscal year

38

Forestry Sector (cont.)
Future Plans
Southern and Western Cape land conversion

• Cabinet has approved the conversion of 45,000ha
  of Safcol unsustainable forestry assets to other
  uses over a 20 yr period
• 7000ha immediately available for distribution
• This includes 4642ha earmarked for conservation,
  1170ha for agriculture and other options
  including housing 312ha
• Over the period to 2005, 12556ha will be
  available for conservation and 2499ha for
  agriculture
• This process is a major step in the ensuring that
  uneconomic forestry forestry assets are
  transferred to and for the benefit of the people
  of SA.
• Advisors have been appointed.

39
Southern and Western Cape - SEP
Forestry Sector (cont.)
Future Plans

• Safcol is in negotiations with Steinhoff
  regarding the formation of a JV between the two
  parties to increase the capacity and technology
  of the Safcol sawmill
• This will involve a major capital investment from
  Steinhoff and downstream employment opportunities
  in this area

40
Alexkor - Mining Sector

• Act introduced and passed by Parliament
• Act removes restrictions imposed on government
  when desiring to dispose its shareholding in
  Alexkor
• Cabinet decision taken to dispose of 30 of
  Alexkor stake to an SEP with BEE and
  international marketing exposure to add value.
• 10 Namaqualand community stake (in Trust) set
  aside.
• Process in place to introduce SEP by 4th Q 2002
• Task team in place composed of DPE, Alexkor to
  accelerate transaction. Terms of reference for
  advisors and issue of RFP done. Advisors
  appointed. Expression of interest process and
  prequalification of bidders complete. Final bids
  to be invited before end of September.
  Transaction process to introduce SEP and BEE to
  be completed Feb 2003
• Retrenchment process in Alexkor halted and
  Alexkor agreed to look at alternative means to
  carry on with current work force up to final
  introduction of SEP later this year
• Some employees will engaged in the shallow water
  contract to avoid permanent displacement.

41
Aventura Hotel and Leisure

• Government owns number of hotel and leisure
  resorts
• In 1999 appointed a management contractor to turn
  Aventura around with a view to dispose as going
  entity.
• Recently Cabinet resolved to dispose of all
  Aventura resorts either in single entities or
  groups.
• Process of Phase 1 disposal of the non-viable
  resorts in place for completion anticipated in
  March 2002.
• Finalization of disposal of two of the three non
  viable resorts nearing completion before end of
  March 2002. The 3rd unit is still awaiting offer.
• Government guarantee issued to Aventura to cater
  for period up to disposal of all business units
• Phase 2 entails disposal of the rest of Aventura
  by 2002 calendar year. Currently bids are being
  considered for some resorts.

42
Other Assets Disposals

• Apron Services
• New mandate from Cabinet will be requested
• - Sale of 51 inclusive of BEE
• - SEP to come with BEE before end of 2002
• Air Chefs
• Non binding bids received
• SAA have been approved as purchasers of Air Chef
• Transaction finalized
• Transnet Housing and Eskom Finance
• Consolidation of these entities feasibility study
  approved
• Transaction advisors to be appointed before end
  January 2002
• Study to be finalized before end August 2002
• Other Assets
• The Department is in the process of identifying
  all Non-core assets and projects to be considered
  for restructuring. The following have been
  earmarked for a speedy restructuring programme
• Government Printers  Autopax  Transmed
   Marine Data Systems  SASRIA  Government
  Printers Arivia.Kom SABC Post Office/Post Bank

43
PROPOSED WAY FORWARD - RESTRUCTURING

• Develop and execute a plan to bring labour back
  on board
• Develop a clear end state options for each
  restructuring project. No two restructuring
  projects are the same.
• Develop a clear terms of reference for each
  advisor
• DPE should appoint a team to audit advisors on
• Legitimate roles for BEE and skills transfer
• Promising senior staff but allocating junior
  staff when the project is sold
• Scope Management
• Quality of Deliverables
• Develop from Spoornet and Portnet a template to
  use on Eskom to develop a restructuring plan
• Exert tighter control on SOE management to
  execute the Departments restructuring mandate
• Execute regular strategy forum sessions to
  discuss project issues
• Execute regular internal and external
  communication

44
Telkom IPO Report

• Introduction..
• Regulatory regime .
• Governance and other shareholder matters
  
• Telkom IPO budget
• Syndicate structure .
• Telkom matters .
• Targets

45
Telkom IPO Report - Introduction
Telkom IPO

• We are ready for the planned listing of Telkom
  during this financial year (subject to market
  conditions)
• The Legislative amendments have been published
  and the process is finalized
• The Regulatory provisions have been developed and
  ICASA has indicated that it will be published in
  time.
• Negotiations with Thintana have progressing well
  and should be concluded soon
• Since the transaction process commenced, market
  conditions in the sector has continued to slide,
  depressing the price even further
• The telkom IPO is scheduled to proceed in ernest
  in the 3rd 4th Q of 2002.

46
Telkom IPO Report - Introduction
Telkom IPO

• The Company preparations for the listing are at
  an advanced stage
• Listing Venues are JSE (primary) and NYSE or LSE
  (secondary)
• The size of the offering will be finalised
  shortly
• IPO will be the largest telecoms listing on JSE
• We will also launch the largest Black retail
  offering in South Africa which will be preceded
  by an unprecedented education campaign of
  significant scale to highlight the benefits of
  share ownership to historically disadvantaged
  South Africans

47
Telkom IPO Report

• REGULATORY REGIME
• 1. Second National Operator (SNO) process
• STATUS
• The process of licensing the SNO is to be
  undertaken in 3 phases.
• RECOMMENDED STRATEGY
• If the SNO process and the additional substantive
  regulatory issues discussed below are unresolved
  at the time of the IPO, the assumptions in
  Telkoms business plan, and subsequently by the
  analysts and investment community, will be
  significantly more conservative. Consequently,
  there will be a reduction in demand and a
  significant discount in the IPO valuation when
  Telkom is compared to its peers and to previously
  considered valuations.

48
Telkom IPO Report

• 2. Regulation fees and charges in the PSTN
• STATUS
•     Telkom has been subject to a tariff
  regulation from 7 May 1997 untill 7 May 2000.   
• Term of this regulation was extended by a
  further 18 months to November 7, 2001.
• . Telkom filed its current tariff proposal
  with ICASA on 14 November 2001. The Minister of
  Communications signed the new tariff regulation
  on 26 November 2001.
•     Regulation will remain in force for 18
  months from 26 November 2001 or until such time
  as a new regulation is promulgated. Telkom
  contesting this regulation.
•     Telkom indicated both Telkom and ICASA have
  requested a postponement of the next court date.
  Telkom wish to prepare an application to set
  aside the entire regulation.
• RECOMMENDED STRATEGY
• The settlement of the tariff structure is now
  subject to a court timetable, which is inherently
  uncontrollable.

49
Telkom IPO Report

• 3. Carrier pre-selection
• STATUS
•     Based on discussions with ICASA, this
  regulation will only be issued in Q3 2003.
•     DoC have indicated that they will discuss
  with ICASA the possibility of accelerating the
  regulation to ahead of the IPO.
• RECOMMENDED STRATEGY
•    Do whatever is possible to reduce the
  regulatory uncertainty by accelerating the
  regulation, notwithstanding that the discount
  resulting from the tariff dispute and the SNO
  process may significantly outweigh the discount
  resulting from uncertainty regarding carrier
  pre-selection.
•    Be prepared to proceed with the IPO without
  this regulation in place.

50
Telkom IPO Report

• 4. Facilities sharing
• STATUS
• ICASA/DoC intend to finalise and issue this
  regulation in Q1 2002.
• RECOMMENDED STRATEGY
• Continue to monitor progress.
• 5. Number portability
• STATUS
• Based on discussion with ICASA and DoC, this
  regulation will only be issued in 2005
• RECOMMENDED STRATEGY
•    The JGCs are comfortable that investors will
  not need additional information in relation to
  the introduction of number portability in 2005.
•    Telkom has not disagreed with this position.

51
Telkom IPO Report

• 6. Regulatory accounting and revision to
  Interconnect Guidelines
• STATUS
• PriceWaterhouseCoopers are engaged to assist
  with the drafting of this regulation. ICASA/DoC
  intend to finalise these by May/June 2002
• RECOMMENDED STRATEGY
• Ensure that timing of finalisation of these
  processes does not conflict directly with offer /
  listing / stabilisation period

52
Telkom IPO Report

• 7. Sentech licence
• STATUS
•     Sentech license was gazetted for public
  comment on 20 December 01 . Hearings are
  scheduled for 10 February.
•     DoC has indicated that it has no current
  intentions to introduce an SEP into Sentech.
  However, at that time, a Sentech/DoC workshop was
  scheduled for 26 January 2002. DoC indicated
  that Sentech may request the introduction of an
  SEP at that time.
•     The introduction of an SEP would
  significantly change the competitive landscape
  for both Telkom and investors.
• RECOMMENDED STRATEGY
• Continue to monitor progress. License needs
  finalisation.

53
Telkom IPO Report

• 8. SMMEs
• STATUS
• ICASA and DoC have issued a regulation on how to
  apply for a SMME licence as opposed to issuing
  individual ITAs by area. ICASA has listed 8
  areas for consideration. Further areas to be
  considered thereafter.
• RECOMMENDED STRATEGY
• Continue to monitor process.
• 9. Amendments to Telkoms licence
• STATUS
• DoC has indicated that it believes Telkom will
  not have any further Universal Service
  Obligations in relation to its existing licence.
  New licences to Telkom (e.g. fixed-mobile, 1800
  MHz, UMPCS (3rd generation)) will have associated
  USO.
• RECOMMENDED STRATEGY
• Obtain greater clarity as to the possibility of
  the introduction of further USOs to Telkoms
  existing licence.

54
Telkom IPO Report

• 10. GOVERNANCE
• STATUS
•     Broad agreement has been reached between
  Government and Thintana on the key issues.
•     The Independent Committee of the Board of
  Telkom continues to dispute the acceptability of
  the exclusive authority of the Operating
  Committee and the veto rights of shareholders at
  Board level. There also appears to be
  significant unresolved matters between Thintana
  and the Board in relation to the Strategic
  Services Agreement.
•     The JSE will, prima facie, share the
  concerns of the Board in relation to the
  Operating Committee and the veto rights of
  shareholders. The Board has in the past
  represented their concerns to the JSE, although
  they since agreed with Thintana not to approach
  the JSE again until agreement had been reached.

55
Telkom IPO Report

• GOVERNANCE (continues)
• RECOMMENDED STRATEGY
•    A final governance structure is a necessity
  at the time of the analysts presentation (mid-May
  for a July pricing and mid-August for an October
  pricing).
•    Given the current intentions, it will require
  significant time for the Board and shareholders
  to negotiate an acceptable governance structure
  with the JSE. It may be that current intentions
  are entirely unacceptable to the JSE.
•    Therefore, if a July offering is to be
  achievable, there is a requirement to accelerate
  the process to finalise the proposed governance
  structure by early March 2002, to give a
  reasonable minimum period of two months in which
  to engage the JSE. This structure should include
  substantially advanced and agreed Articles and
  Strategic Services Agreement, together with the
  related Shareholders Agreement.

56
Telkom IPO Report

• 11. OTHER SHAREHOLDER MATTERS
• STATUS
•     20 cap on IPO falls away after May 2002.
•     Broad agreement between shareholders on
  other key IPO related matters.
• . Telkom had elevated the cost sharing
  discussions to the level of the shareholder
  negotiations.
• . Today, agreement at Joint IPO Steering
  Committee to elevate it to Board level and not
  shareholders.

57
Telkom IPO Report

• 12. TELKOM IPO BUDGET
• STATUS
•     Approval required to rollover unused
  portion of current funds into the 2002/03 fiscal
  year and an additional budget of approximately
  R47m will be required to extend third parties
  contracts and accommodate exchange rate
  movements.
•     Consideration is currently underway to
  balance Governments social objectives in
  relation to the IPO with currently available
  funds (assuming a full roll-over and amount to
  extend third party contracts). Further funding
  would allow these objectives to be more fully
  achieved.
• RECOMMENDED STRATEGY
•    National Treasury to release additional
  funding when there is a definitive decision on
  the timing of pricing.
•    Negotiation to take place with Telkom with
  respect to establishing cost sharing principles.

58
Telkom IPO Report

• 13. SYNDICATE STRUCTURE
• STATUS
• Initial paper on mechanics of syndicate
  structure presented. Cabinet memorandum on
  syndicate structure prepared and submitted to
  IPO Office which requests that the IPO Office is
  enabled to undertake the syndicate selection
  process.
• RECOMMENDED STRATEGY
• Government to revert with position to the JGCs
  at appropriate timing.
• 14. TELKOM MATTERS SCENARIO PLAN / PROSPECTUS
• STATUS
• Telkom intends to prepare a draft scenario plan
  by mid March, to be discussed by the board by
  the end of April.
• It is intended to submit the first draft of the
  prospectus to the SEC before end March, as it is
  necessary to have audited financials within the
  last twelve months at the time of submission.
• RECOMMENDED STRATEGY
• None

59
Telkom IPO Report

• 15. TARGETS
• Complete SEP negotiations- 1Q 02
• Develop business plan of Telkom and Vodacom- 1Q
  02
• Launch the media and education campaign - 1Q 02
• Roll out communication strategy on the IPO - 1Q
  02
• Offering and listing of Telkom shares 3Q 02
• Obtain approval to proceed with the ACSA
  transaction Q1 02 with the aim of listing 2003
  / 2004
• Monitor development of company and industry
  performance to prepare SAA for listing 2004
• Hold discussion to explore SEP / IPO options
  arising from Arivia.kom business model Q1 02
• Monitor the introduction of an SEP in Alexkor
  with the aim of listing in 2004

60
PERFORMANCE MONITORING AND BENCHMARKING REPORT
61
CONTENTS

• Introduction
• Objectives for the 2001-2002 financial year
• Projects undertaken during the 2001-2002
  financial year
• Achievements to-date
• Objectives for the 2002-2003 financial year
• Projects planned for the 2002-2003 financial year
• The Units medium-term objectives for the next
  four years
• The Units long term objectives for the next ten
  years
• Post-restructuring model

62
INTRODUCTION

• Government, as a shareholder in state owned
  enterprises (SOEs) , seeks to protect and
  maximize the benefits of its investments in the
  SOEs.
• This can be achieved by monitoring the overall
  performance of SOEs within their environments
  and benchmarking the said performance with other
  companies whether public or private, locally and
  internationally.
• Performance Monitoring and Benchmarking Unit is
  intended to and undertakes the function of
  safeguarding the shareholder interests in SOEs.
• It is, however, the Governments intention to
  consolidate its whole shareholding interests in
  public entities and manage it under one Business
  Unit /Department in order to avoid the current
  fragmentation in the management of the
  shareholding interests.
• To give effect to the intention of Government,
  the government shareholding model is currently
  being developed by the Unit.

63
OBJECTIVES FOR 2001-2002

• In line with the Departmental Business Plan, the
  Branch had set for itself the following
  objectives for the abovementioned period
• Monitor and interrogate the financial performance
  of SOEs with a view to holding SOE leadership
  accountable for performance.
• Monitor, implement and advocate improved
  corporate governance ensuring improved ethics and
  probity in SOEs.
• Manage healthy relations between the shareholder
  and SOEs.
• Monitor broader socio-economic indicators of
  SOEs including empowerment strategies.
• Be the State's custodian for the portfolio of
  SOEs and advise government of SOE performance
  and progress towards established targets and
  indicators.
• Develop a database of relevant benchmarks and SOE
  information to entrench a performance mindset in
  the SOEs.

64
PROJECTS DURING 2001-2002

• Development of a financial model as an instrument
  and a framework to measure the financial
  performance of the SOEs.
• Develop a shareholder compact for each SOE as an
  instrument to give effect to good governance in
  SOEs.
• Undertake an AS IS corporate governance audit
  in SOEs and within the shareholder to ascertain
  the status of compliance with corporate
  governance principles as set out in the Corporate
  Governance Protocol for Public Entities and in
  the King Reports.
• Develop a Web-based database system of SOEs and
  other Public Entities.
• Develop a shareholding model within which
  government shareholding will be consolidated and
  managed.
• Advocate good corporate governance within the
  various structures of government through
  presentations, discussions and providing advice.

65
ACHIEVEMENTS FOR 2001-2002

• The financial evaluation model to evaluate the
  SOEs financial performance has been developed
  and communicated to the SOEs to prepare for its
  implementation.
• Concerns of the SOEs are currently being
  factored into the model in order to ensure the
  smooth operationalization of the evaluation
  model.
• The financial reports of the SOEs such as Eskom,
  Transnet, Denel and Safcol have been or are in
  the process of being tabled to Cabinet.
• All efforts are being put on Alexkor and Aventura
  to finalize their financial statements.
• The financial statements have been interrogated
  and reported in the progress reports to Cabinet.

66
ACHIEVEMENTS FOR 2001-2002 (Continued)

• Shareholder compacts have been signed with
  Transnet, Eskom and is in the process of being
  signed with Denel.
• The process of operationalizing the shareholder
  compacts is currently under way.
• The revision of the Protocol on Corporate
  Governance for use in the Public Entities is
  under way, and the first draft is out for
  comment.
• The following Boards have been restructured
  successfully
• Transnet
• SAA
• Safcol
• Aventura
• Eskom

67
ACHIEVEMENTS OF FOR 2001-2002 (Continued)

• The challenges in Aventura called for the board
  to be restructured before the annual general
  meeting. The new Aventura Board is now in place
  and therefore the disposal strategy as approved
  by Cabinet is under way.
• The government Shareholding end-state/ model
  has been developed albeit a draft document for
  consideration at this stage.
• An audit of compliance with corporate governance
  in SOEs is in the second phase whilst the third
  and the final phases are to be completed soon.
  The objective of the audit is to determine the
  status of the SOEs compliance with the
  principles of good governance as spelt out in the
  Protocol and the King Report.
• The report of this audit will assist the
  Department and the SOEs to develop intervention
  measures where shortfalls have been identified.

68
ACHIEVEMENTS FOR 2001 2002 (Continued)

• ESKOM
• All systems are now in place to incorporate Eskom
  Holdings Limited and to form the board of Eskom
  Holdings accordingly.
• The Memorandum and Articles have been published
  in the Government Gazette for public comment,
  submitted to Cabinet for noting and circulated to
  key stakeholders for comments.
• The final document has been tabled in Parliament.
• The process of appointing a Board of Eskom
  Holdings, which replaced the Electricity Council,
  is complete.

69
ACHIEVEMENTS FOR 2001 2002 (Continued)

• AVENTURA
• Whilst offers have been received for three
  business units of Aventura, which were ear-marked
  for short term disposal, namely, Christiana,
  Aldam and Bloemfontein, only two offers have been
  accepted.
• These offers relate to Aldam and Bloemfontein
  whilst additional information is being considered
  for Christiana.
• The disposal process of the three business units
  finalized
• Disposal process for the rest underway.

70
OBJECTIVES FOR 2002-2003

• One of the Departments mandates is to serve as
  custodian of Governments shareholding interests
  in SOEs which entails a responsibility to
• - Monitor and interrogate the financial
  performance of SOEs with a view to holding SOE
  leadership accountable for performance
• - Monitor, implement and advocate improved
  corporate governance ensuring improved ethics and
  probity in SOEs
• - Manage healthy relations between the
  shareholder and SOEs
• - Monitor broader socio-economic indicators of
  SOEs including empowerment strategies
• - Be the State's custodian for the portfolio of
  SOEs and advise government of SOE performance
  and progress towards established targets and
  indicators
• - Develop and monitoring a database of relevant
  benchmarks and SOE information to entrench a
  performance mindset in the SOEs.

71
PROJECTS PLANNED FOR 2002-2003

• In order to achieve the objectives that the
  Department has set itself in terms of its role as
  a shareholder in SOEs, the following are some of
  the projects which have been planned for the
  year
• The revision of 1997 Protocol on Corporate
  Governance and alignment thereof with the King
  Report II and the PFMA.
• The development of an Investment map of SOEs.
• Research on Socio Economic and other best
  practice and benchmarks for each SOE as well as
  the development of a database for the said
  benchmarks.
• Conduct second phase of the Post restructuring
  model DPE end- state.
• Awareness of SOE web-based database to all SOEs
  resulting in the population of the said database.
• Conduct Directors training.

72
PROJECTS PLANNED FOR 2002-2003 (Continued)

• ALEXKOR
• In order to prepare Alexkor for restructuring, it
  has been necessary to create capacity within the
  Board.
• The Board appointment process is already underway
  with the final appointment being targeted for
  Alexkors AGM.
• A full capacity Board will be able to deal with
  the current dynamics that Alexkor faces in a
  pre-restructuring environment.
• Legislation is already in place to give effect to
  the restructuring as approved by Cabinet.

73
MEDIUM TERM-OBJECTIVES

• 2002 2004
• The Departments strategic objectives for the
  medium-term 2002 2004 include the following
• - Safeguarding of governments shareholding
  interests in State Owned Enterprises, thus
  serving as a holding company.
• - Provide advice to shareholder on performance
  of its investment and continued ownership, on a
  holistic and integrated basis.
• - Ensure efficient performance and maximum
  return on investment through rigorous
  performance monitoring and evaluation.
•  

74
MEDIUM TERM-OBJECTIVES (Continued)

• 2002 2004
• Entrench a culture of and promote good corporate
  governance, probity and business ethics in terms
  of best practices within SOEs.
• Monitor and evaluate socio-economic performance
  and organizational health of SOEs within
  established frameworks.
• Develop and implement intervention measures
  within framework of relevant acceptable
  benchmarks, to enhance value.
• Provide inputs and insights on impact of DPE
  Programmes and restructuring.

75
MEDIUM TERM-OBJECTIVE (Continued)

• 2002 2004
• Monitor and interrogate the financial performance
  of SOEs with a view to holding SOE leadership
  accountable for performance.
• Continuously monitoring the succession planning
  in SOEs to ensure that the shareholder is
  positioned to replace executives management
  should a need arise.
• Manage healthy relations between shareholder and
  SOEs.
• To provide building blocks for the proposed
  post-restructuring model in the form of creating
  capacity and marketing the concept.
• Finalizing the post restructuring model for
  approval by Cabinet. 

76
MEDIUM TERM-OBJECTIVES (Continued)

• 2002 2004
• Approved economic, investment and integrated risk
  management strategies
• Approval and implementation of relevant databases
  for the SOEs

77
LONG-TERM OBJECTIVES (the the next 10 years)

• POST RESTRUCTURING MODEL
• Shareholding of SOEs is held by various
  Government Departments and there is a necessity
  to consolidate governments approach with a view
  to enhance shareholder value.
• The rationale for the development of a
  Post-Restructuring Model is based on the
  understanding that government will continue to
  own a stake in SOEs in varying proportions, and
  as such, will continue to have a significant
  interest in how its shareholding is managed and
  of ensuring that its socio-economic objectives
  are met.

78
POST RESTRUCTURING MODEL (the next 10 years)

• The current position is that government
  shareholding is held and managed by various
  departments within government with different and
  wide ranging objectives resulting in the
  fragmentation of approaches thereby undermining
  the maximum benefits that could be derived from
  consolidated government shareholding in SOEs.
• It is within this context that government
  shareholding interest in SOEs has to be
  consolidated and managed by one entity.
• Any Restructuring that will invariably be
  executed post 2004 will have to be identified
  through a performance evaluation process.This
  entails monitoring the performance of SOEs in
  the following areas -
• - Corporate Governance.
• - Financial performance.
• - Risk analysis identification, monitoring and
  management.
• - Socio Economic and Environmental risk
  performance of SOEs.
• - Identifying investment and business
  development opportunities for SOEs.

79
Programme of the Strategic Analysis Unit

• A.THE EMPLOYMENT PROJECT
• Funded by USAID
•  
• Discussion with Consultant Haroon Borat and USAID
  (funders)
• have to make slight changes to the Terms of
  Reference.
• We have supplied him with data but would need
  month of February to assess it relevance to the
  study and also to clean it up.
• On the 3rd week of March he will be coming back
  to us with his first tae on employment trends.
• In April he will be simulate and give us an
  alternate job re-allocation strategy.
• The report will be ready in the first two weeks
  of May.

80

• It will show us
• The historical patterns of employment in the 4KI,
  the major reasons for employment fluctuations and
  the reasons for the change in employment by the
  SOEs and to find out whether these are due to
  restructuring or other reasons
• A simulation model and report on the possible
  future outcomes for unemployment
• Various options for dealing with those worker who
  cannot be assimilated back into the job market.
• Pre 199e employment in the 4KI
• The viability of the social plan to mitigate job
  the effects of job losses.

• Programme of the Strategic Analysis (Cont.)
• B.POLICY FRAMEWORK REVIEW
• Collating inputs into policy review from
  different Units.
• Most inputs do not respond to the policy review.
• Will re-orientate questioning for Units to be
  self critical brutally honest about where policy
  hinders them.
• Refocus people towards looking at the framework,
  identifying what they should action from it and
  then tell us whether they are achieving this or
  are inhibited by policy. 
• Most of the inputs are about progress in their
  Units and they do not interrogate the policy
  framework.  
•  Process will be over latest Mid-May

81

• Percentage of government shares that need to be
  divested and allocation to each employee
• Administration and management of shares by a
  trust on behalf of employees
• Pricing of shares

• Programme of the Strategic Analysis (Cont.)
• CThe EMPLOYEE SHARE OWNERSHIP PROGRAMME
  (ESOP).
• Terms of reference approved by DG
• Awaiting for finance from USAID next financial
  year.
• Implement ESOPs in the various SOEs and will
  cover the following issues
• A review of international best practices of ESOPs
  and the applicability of such models to the South
  African
• Operational models for implementing ESOPs
  successfully in South Africa with special
  emphasis on design to evaluate the following

82

• Programme of the Strategic Analysis (Cont.)
• Funding e.g. credit and/or discounting of shares
  to ensure affordability
• The criteria used to determine eligible employee
  in the process and allocation of shares
• The vesting period for shares
• Effective participation of employees in the
  management of an enterprise once they have
  shares. This could be done by giving employees
  voting shares (role of unions)

83

• Programme of the Strategic Analysis (Cont.)
• D DEVELOPMENTAL RESPONSIBILTIES OF THE SOES
• The study will look at whether the developmental
  demands of the country and of the continent
  (NEPAD) can be fulfilled by the SOE without
  resorting to Government underwrites on their
  project.
• Concern has been raised from the outset that some
  of them cannot balance their books let alone
  engage in developmental issues.

84

• Programme of the Strategic Analysis (Cont.)
• The possibility of co-operative ownership and
  management buy-outs for broad based empowerment
• Taxation issues
• Conditions for sale of shares Incentives for
  keeping shares for longer period and to safeguard
  against reselling to minority shareholders while
  at the same time ensuring liquidity of shares
• Education
• Project will be finished Three months after
  commencement. 

85
ALTERNATIVE SERVICE DELIVERY
86
ASD PROGRAMME

• KEY STRATEGIC PROJECTS
• Public Sector Procurement and Black Economic
  Empowerment
• ASD International Benchmarking

• KEY STRATEGIES (IMPLEMENTATION)
• Operational Framework Operational Guidelines
  and Procedures Supply/Support Strategy
  Reporting Monitoring and Evaluation Models
• Programme Conceptualisation and
• Comparative Study/Strategies on ASD practices

87
KEY ACTIONS 2002/03

• Development and implementation of the Procurement
  Operational Framework for the SOEs
• Launching of the Reporting, Monitoring and
  Evaluation System (Electronic)
• International Benchmarking of ASD with
  international best practices
• Development and implementation of restructuring
  BEE approach within the National Strategy
  Framework (DTI)

88
Overview

• Three broad constituencies whose support is
  needed
• Government, supports the restructuring programme
• Business, supports privatization, understanding
  superficial
• General Public, the historically disadvantaged
  groups, the most important constituency for DPE.

89
Role of Communications

• To set the agenda with regard to how
  restructuring is talked about.
• Control the flow and content of information to
  the media and through
• the media to key constituencies
• Build understanding and support for the
  restructuring program and
• Explain the mission and contribution of the DPE.

90
Proactive Communications

• Bi-weekly communications meetings with DPE
  managers.
• Restructuring Update, quarterly newsletter-format
• publication. (priority program).
• Monthly briefing sessions, with print and
  electronic media, and parliamentarians.
• DPE website to be redesigned, and made more
  accessible
• Information/education materials to be produced

91
Public Education

• Awareness and opinion surveys.
• The first will provide baseline data and help
  focus messages.
• The second will demonstrate increased public
  understanding and acceptance of the governments
  restructuring programme
• An outreach programmed, series of meetings in all
  nine provinces.
• Briefing sessions with local and regional media,
  to give background to understand the
  restructuring programmed.
• Community radio call-in shows in which DPE
  managers can address developments/issues in local
  vernacular.

92
Messages

• Should be consistent and repeated frequently in
  speeches,
• documents, press releases
• For government
• Restructuring is not privatization, but rather
  the
• rationalization and redeployment of state assets.
• For Business and labour
• Supports empowerment objectives by and helps
  build
• strong black businesses that are essential for
  stable and
• sustainable growth.
• For the public
• Uses the resources of the state to improve the
  quality of
• life for all.

93
Transaction Support

• Strategic planning.
• Messaging.
• Positioning.
• Organizing road shows and presentations.
• Preparing information materials and
• Organizing media coverage.

94
Services

• Advice on communication strategy
• Daily monitoring of news coverage
• Writing/editing speeches, brochures
• Press conferences, media interviews.

95
Staffing

• Immediate recruitment of two additional
• professional staff.
• One administrative assistant and one secretary.

96

• INTERNATIONAL RELATIONS