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SA asset managers welcome the government’s energy and aviation reforms

‘The 100MW power development is the most significant reform since the 1990s. We have to welcome it.’
President Cyril Ramaphosa. Image: Bloomberg

South African asset managers have welcomed the reforms announced by the government last week, believing that they will boost confidence and economic growth while improving state finances.

President Cyril Ramaphosa on Thursday announced that private companies could produce up to 100MW of electricity without a licence. On Friday, Public Enterprises Minister Pravin Gordhan declared that the government would relinquish control of SAA and sell a 51% stake to a consortium.

Read: Is this Ramaphosa’s most decisive economic decision since taking office?

PIC owns 30% of Harith, but ‘is not involved’ in 51% SAA acquisition

Citywire South Africa asked for reaction from three economists.

Ninety One South Africa deputy managing director and head of investments Nazmeera Moola

‘The power and SAA developments are very positive. Energy has been the biggest constraint on South Africa’s economy for the last six or seven years, if not longer. But, unfortunately, we also have deteriorating energy availability.

‘Commodities are also doing very well. You want to see mining companies expanding, so that means energy demand will increase. If we don’t solve the electricity problems, we will not grow.

‘What we already heard from Minerals Council CEO Roger Baxter is that they have 1.6 gigawatts of power waiting to come online in the next 24 to 36 months, and there will be R27bn in investment to come from that. That is just the mining industry, and we will now open this up to buildings and other industrial users.

‘This is good news for economic growth from multiple angles:

‘Firstly, you are going to see private sector fixed investment numbers increase,

‘Secondly, confidence will also get a boost,

‘Thirdly, it will allow the heavy energy users to grow.

‘The positive signal from the SAA announcement is that the government is finally getting over its ideological position that they must maintain control over all state-owned entities (SOEs). Given the desperate need to introduce private sector expertise into many of these companies and remove government interference from the day-to-day running of these entities, this is a very positive sign.

‘Short term, the economic impact from the SAA announcement is likely to be neutral. However, to facilitate this handover, the government has had to put money into the pot.

‘Many of these entities have been so badly run that they face large holes in their balance sheets. The longer-term impact is that SAA will not have to seek constant recourse to the fiscus.

‘We see a pick up in reform. Electricity is an important sector for me. There is a need for bureaucracy to be cleared in the mining sector, but I hear there are incremental moves on that front too.’

Alexander Forbes economist Isaah Mhlanga

‘Structural reforms involve many stakeholders with vested interests, such that the negotiations to achieve an amicable decision take some time. We saw it with SAA. It is partial privatisation, which is the right thing because you get the best private sector and government expertise.

‘We have a model for how public-private partnerships can work in the form of Telkom. It used to be wholly owned by the state but was partly privatised, and since then, it has been paying dividends to the government.

‘Why would anyone refuse to use such a model that helps employ people, drives competition in the telecommunications sector, and lowers data prices, which benefits consumers? We have seen that SOEs haemorrhage money from the National Treasury. I see the SAA development as very positive. Hopefully, SAA will turn a profit and pay dividends.

‘The 100MW power development is the most significant reform since the 1990s. We have to welcome it.

‘If companies may generate their own electricity, that means they will not be reliant on Eskom. This will boost economic growth.

‘In sofar as SAA is concerned, the guarantees the state provides SOEs has meant that government debt has increased. In addition, SAA partially privatised meant that state funds will be freed up for other developmental purposes. This will boost confidence.

‘There are signs that things are turning around. For example, we have seen firms like Deloitte & Touché, KPMG and McKinsey paying back the money to the government for money gained through bad dealings. That, for me, is evidence that there is a turnaround happening.

‘Other reforms that are needed are in the energy, rail, ports and telecommunications sectors.’

Momentum economist Johann van Tonder:

‘Both the reforms announced by the government are excellent. But the state should have implemented them long ago. Nobody is going to take over SAA if it is bankrupt. So the state first needed to sort out the airline’s finances.

‘SAA is going to have to be run like a private company and make profits. What the state has realised is that it cannot continue bailing out SOEs. This move is very positive for the fiscus, and that will improve the country’s credit rating.

‘The government allowing businesses to generate 100MW of electricity will reduce pressure on Eskom.

‘We have taken the first steps towards stabilisation. We are moving in the right direction.

‘Sorting out Eskom will increase the country’s growth potential and job creation, which will alleviate poverty and reduce crime.’

This article was first published on Citywire South Africa here, and republished with permission.

COMMENTS   12

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Don’t these asset managers know that these “reforms” are ALL theatre? How can corporate SA continue to be fooled by HMR and the rest of the ANC? The goal of the ANC is clear, to become custodians of ALL assets in SA including not only land but all that these asset managers own. These “reforms” are just to put us at ease so they can push through nationalisation.

All good and well but :
The energy generation for stand alone use is welcome but the real problem still remains all the hoops and bureaucratic BS involved in trying to get a grid connection done via Nersa and Eskom.
Wheeling of the generated power over the grid remains to be addressed.
Selling of the generated power to another party is still a moot point especially where the Eskom grid is involved.

As for SAA — good luck drawing any customers beyond the ANC Cabinet on frequent flyer miles.

Johan de Ruyter had an excellent interview on TV with Dennis Davis recently. I believe Eskom will facilitate these connections. They are also feeling the pressure of load shedding and would like to have some breathing space to focus on bringing more clean energy on line.

It is not cost effective to clean up emissions from old power stations. There are a lot of of low interest loans available for clean energy projects.

In SA and all other markets economy customers fly primarily on price. So if Global Aviation can operate at a low cost some pax will almost certainly fly. On domestic routes, question remains if they will keep Lift alongside Mango or close Lift.

What’s wrong with flying SAA? People will fly if there is an incentive such as a lower price. Nothing wrong with the aircraft, pilots, cabin crew or maintenance.

Only problem is that they do not currently have any aircraft, pilots or cabin crew — Otherwise all is ok ne !!

The last SAA flight nearly ended in disaster and the return leg bust all noise abatement procedures out of Brussels.
Of course there is a problem with crew proficiency.

Springbok : you can offer me free flights ( like cabinet ministers) but I will never fly to this ANC BEE airline : even if they paid me : done and dusted.

The Zuma Midas touch

I first want to see the detail on SAA. In most BEE deals, the existing shareholder has to lend money to the BEE shareholder in order to buy the shares. Therefore government probably lent money to Takatso to buy 51%. If so, what happens if they don’t repay? Then Government might as well have capitalised SAA themselves.

Boy we’re off a LOW base if this little 100MW policy tweak is the best policy decision in 25+ years! Its beyond common sense and should have a 1000MW (subject to EIA) limit – why any limit at all in fact? The dead hand of the Guptacadres constricts all our throats

SA is easy to sucker. Ramaphosa’s ANC blows some smoke and the asset managers” are all falling over each other to swallow it. It is just talk people; SAA is likely a con job to ease money out of the GEPF. What about debt and unemployment? Dysfunctional municipalities? EWC? Ignore them and rely and hope?

End of comments.

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