South African Airways Bill: deliberations
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Meeting report
PUBLIC
ENTERPRISES PORTFOLIO COMMITTEE
30 January 2007
SOUTH AFRICAN AIRWAYS BILL: DELIBERATIONS
Chairperson: Mr Y Carrim (ANC)
Documents handed out
South African Airways Bill
[B35-2006]
Document of the
Department of Public Enterprises (DPE)
SUMMARY
The Minister and Department summarised that the Bill essentially provided
for SAA to be a stand-alone government owned entity, but also made provisions
for it to become a public listed company in the future. Listing of SAA would be
likely to attract investment. It was possible that a minority stake could be
disposed of in future by an initial public offering. The State expected SAA to
operate profitably and not expect to rely on state guarantees. The Department
took the Committee clause by clause through the Bill. Members’ questions
related to the practice of hedging, the status as a national carrier, what was
expected of SAA, whether government could rescue SAA in the event of failure to
perform, consultation with the unions, possible job losses, and government
recapitalisation. Clarity was requested on some of the definitions in Clause 2.
Several members expressed concerns about possible conversion, which they
accepted was a policy issue. They felt strongly that parliamentary approval
must be obtained before conversion, and that there must be specific reference
to this in the legislation. They were also firm on the need to formulate a
preamble that asserted the State’s strategic role in SAA. The Department was
requested to respond to Members’ concerns at the next meeting.
MINUTES
Introductory remarks by the Minister
Members of the NCOP Standing Committee on Public Enterprises were present
for the briefing by the Minister of Public Enterprises, The Hon. Alec Erwin. He
stated that the Bill made South African Airways (SAA) a stand-alone government
owned entity and also made provisions for it to become a public listed company
in the future. The Minister told the Committee that government would maintain
strategic control of the airline because it would promote critical tourism and
business links. He opined that the listing of SAA would make it easier to
attract investment. He favoured the disposal of a minority stake by means of an
Initial Public Offering (IPO) but only expected this to take place in several
years. Mr Erwin was adamant that the state would not bail out SAA or any other
state-owned enterprise (SOE). He wanted these enterprises to operate on the
strength of their balance sheet and to eliminate their reliance on state
guarantees. The Minister recognized SAA’s efforts to turnaround its financial
and management shortcomings, and expressed hoped that SAA would strengthen.
Discussion
Mr J Stephens (DA) reminded the Committee that SAA had a history of
hedging. He wanted assurances from the Minister that SAA would avoid this
practice in the future. He warned that the fiscus would be put under tremendous
pressure if SAA continued with speculative hedging. Also, he hoped that SAA
would apply better management practices and processes.
The Minister dismissed the notion that hedging was evil. He argued that it was
a necessity that needed to be implemented in a simplified and restricted
manner. Furthermore, he expressed satisfaction with the Departmento of Public
Enterprise’s (DPE’s) established policy on risk management and hedging. Lastly,
he pointed out that the management practices at SAA had improved because there
were two sources of oversight, namely the Department and Treasury.
Mr Stephens expressed concern about the possible future conversion of SAA into
a public company.
Mr P Hendrickse (ANC) said that he had no problem with the separation aspect of
the Bill. However, he echoed the concerns of the previous speaker regarding the
possible future conversion of SAA into a public company.
The Minister confirmed that the Department wanted SOEs to operate on the
strength of their balance sheet and to eliminate their reliance on state
guarantees. He said that it was important for government to maintain a
strategic control over SAA but did not rule out the possibility of raising
capital from the market in the future. He pointed out that the government did
not wish to replicate its experience with Telkom where it no longer had
control. He supported the principle of using IPO as part of a turnaround
strategy but this had to be balanced with government’s interest. He appealed to
the Committee to accept the Department’s approach on the matter and did not
wish to engage in a debate at this stage whether there should be an IPO or not.
Mr Hendrickse enquired whether SAA was a national carrier.
The Minister emphasized that SAA was a modern national carrier but this did not
mean that government would bail it out at any time. He asserted that the SAA
Board and management were informed that they needed to exercise proper management
and that compelling reasons were needed for recapitalization.
Mr Hendrickse asked what SAA’s bottom line would be.
The Minister replied that SAA would have to recover its costs and operate in a
sustainable manner.
Mr Hendrickse queried whether there was any restriction on foreign ownership.
The Minister responded that there was no absolute restriction on foreign
ownership.
Mr Hendrickse bemoaned the fact that while government owned 38% of Telkom, it
had lost control and impact there.
The Minister acknowledged this point. He was confident that lessons had been
learned well, and that this would not be replicated.
Mr L Gololo (ANC) wished SAA well. He asked the Minister what plans were in
place to rescue SAA if it failed to perform properly.
The Minister highlighted that there had already been improvements and that SAA
did well in its first year. He re-iterated his confidence in the Board and
management of SAA. Lastly, he admitted that SAA had no option but to reduce its
cost base across the board in order to improve its rate of return.
Mr Z Kotwal (ANC) asked if the Department would consider a form of subsidy for
air passengers.
The Minister replied that most airlines received some sort of subsidy. He
clarified that this did not take the form of a subsidy for each passenger
because it would be economically unsound and untenable on the fiscus.
Mr Hendrickse enquired whether the unions or business fraternity had been
consulted on the Bill.
The Minister said that the unions were consulted. He believed that there was no
reason to consult with the business fraternity because it was a matter of
government’s own interest.
The Chairperson sought clarity whether the position to retain SAA in
government’s hand was clearly reflected in the Bill. He suggested that the
conversion aspect of the Bill be postponed. He argued that the Department must
consult parliament and seek its agreement at the time of the future conversion.
The Minister answered that he was confident that the Bill was sufficient and
did not want to make it too complicated.
The Chairperson voiced his concern regarding the future loss of jobs.
The Minister remarked that job losses were an unfortunate reality. He promised
that negotiations would take place with the unions in order to soften the blow.
The Chairperson asked whether SAA would be recapitalised by the government
after its separation from Transnet.
The Minister answered in the affirmative. He stated that the Department would
seek support from the Treasury for essential recapitalisation in the next year.
He concluded that any recapitalisation would have to be properly motivated.
South African Airways Bill: Committee deliberations
The Chairperson asked Ms Ursula Fikelepi, Chief Director: Legal Counsel,
DPE to guide the Committee through the Bill. Members were asked to interrogate
the DPE if they needed any clarification.
The Chairperson asked whether it was possible to have a public company without
a share capital.
Mr Lawrence Human, a transaction analyst, answered in the affirmative. He added
that the wording of Clause 2(b) of the Bill, which referred to “the conversion
of SAA (Pty) Ltd into a public company with share capital’-was consistent with
the formulation in the Companies Act.
Mr Stephens repeated his concerns about the possible conversion. He felt
uncomfortable endorsing legislation without knowing the details, terms and
conditions of a future event.
Ms Portia Molefe, Director General, DPE, retorted that the Department was
following the Treasury’s instruction to include this aspect in legislation.
Mr Vuyo Kahla, Group Executive, Legal Servies and Risk, Transnet Limited,
mentioned that there was nothing in law preventing a private company from
converting into a public company.
Mr Stephens observed that conversion was a policy issue. He asserted that even
though the Department did not need legislation to convert, this Committee had
an obligation to examine it because the issue was now in front of the
Committee.
The Chairperson made the point that there should be some provision in the Bill
that specified that SAA would remain in the state’s hands. He favoured IPO’s
and private/public partnerships as better alternatives to privatisation.
Mr Stephens persisted that parliament should have an input during the
conversion process.
The Chairperson sought clarity on the word “interests” in Clause 2(a) of the
Bill.
Ms Molefe answered that it referred to the assets, liabilities, claims and
risks.
Mr C Wang (ANC) asked what the word “member” in Clause 3(a) meant.
Ms Fikelepi replied that it referred to a member of the Board of SAA.
Mr Stephens argued that word “shareholder” should be preceded by the word
“sole” in Clause 3(a) of the Bill and that the word “member” was not necessary.
Mr L Human advised against inserting the word “sole” because SAA was in the
process of finalising a share scheme with employees and that this insertion
could create technical problems.
Mr V Kahla explained that it was possible to be a shareholder, specifically a
preference shareholder, without being a member.
The Chairperson accepted this explanation and proposed that the word “member”
should be retained.
Mr C Wang proposed the words “main” or “majority” instead of sole.
Mr Stephens reiterated his suggestion that the Bill must provide that
parliament be consulted and its consent be sought before conversion.
The Chairperson summarised that there was unanimity concerning the separation
of SAA. He noted that the Committee needed to be convinced on the conversion
aspect of the Bill, which was a difficult matter that involved policy
questions. He asked the Department to respond to Members’ concerns at the next
meeting.
The meeting was adjourned.
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