President Jacob Zuma pauses after being disrupted during his state of the nation address on Thursday.  Picture: TREVOR SAMSON
President Jacob Zuma pauses after being disrupted during his state of the nation address on Thursday. Picture: TREVOR SAMSON

SIGNALLING that the government is finally ready to move on the reform of state-owned companies, President Jacob Zuma has released the report of the presidential review commission, which advocates partial privatisation through listing and the sale of equity stakes in some companies.

The report was commissioned by Mr Zuma in 2010 and he received it in December 2012. In 2013 a brief summary was made public by then minister in the presidency Collins Chabane. The full report was finally released by the Presidency on Friday.

Mr Zuma has come under extreme pressure from business, ratings agencies and his allies to address the financial difficulties and governance and management deficiencies in state-owned companies.

Business leaders who met the president last week emphasised that fixing state-owned companies through the involvement of private sector expertise and partnerships, and altering their debt profile through private sector equity participation was an essential ingredient of fighting off a ratings downgrade.

The Presidential Review Committee on State-Owned Entities was headed by suspended national police commissioner Riah Phiyega before her appointment to the police. The deputy chairman of the panel was former presidential adviser Glen Mashinini, now a commissioner at the Electoral Commission of SA.

The report recommends a shake-up of state-owned enterprises, including the partial listing of some, the privatisation of others and the establishment of an overarching state authority to co-ordinate the government’s big infrastructure-related companies.

It suggests that the government "should adopt a policy shift towards a greater mix of debt and equity finance" — particularly for enterprises on which "colossal" infrastructure demands have been placed — as the scale of debt "is not sustainable".

Without specifying the enterprises, the committee says the government "should consider possibilities of listing select state-owned enterprises on the JSE, while astutely preserving government control and maximising investor participation". It recommends encouraging and expanding private sector participation in partnering with state-owned enterprises to deliver economic and social infrastructure.

For entities that are not commercially viable or where the case for state ownership no longer exists — these are not named in the report — the government should rationalise its holdings and focus on retaining enterprises that provide public goods or are deemed to be of strategic importance.

It should divest from entities that do not meet these criteria and are underperforming, it says.

During preparations for the national general council of the African National Congress (ANC) last October, the party’s national executive committee was divided on whether the report should be released to the public, and it was withheld.

But some behind-the-scenes work on the shape and size of state-owned companies was done in an interministerial committee led by Deputy President Cyril Ramaphosa, which Mr Zuma established in 2014.

Since then both Mr Ramaphosa and Public Enterprises Minister Lynne Brown, who also serves on the committee, have hinted that they examined alternative models for state-owned enterprises. They were due to report to the Cabinet lekgotla last January, but this never happened.

Mr Ramaphosa and Ms Brown visited China last July and spoke approvingly of reforms to that country’s state-owned enterprises — which included the listing of large Chinese state companies on foreign exchanges. Guidelines by the central committee of the Communist Party of China allow for "mixed ownership" of state companies, with "various investors" drawn in to diversify share ownership.

State-owned firms have been encouraged to restructure to pave the way for stock listings.

Although Ms Brown is frequently quoted as saying the ANC does not support the privatisation of basic services, it is becoming clear she means the wholesale or majority-stake sale, not smaller amounts of private investment.

She is a strong supporter of the model adopted by state-owned Denel, in which the holding company remained 100% state-owned while its divisions took on equity partners to raise capital and gain access to technology.

The Department of Public Enterprises has for several months promised to publish a "concept paper" on the future of state-owned enterprises, but it has not materialised.

Interviewed in the Sunday Times yesterday, Mr Ramaphosa said that the work of the interministerial committee was very far from completed.

He said the team had to determine the fate of all 700 state-owned companies.

Among its objectives, when it did report, would be to instill a code of behaviour in all state-owned enterprises that ensured good corporate governance and rooted out the practice of awarding contracts on the basis of political connections.