World Report

State-owned Eskom and Transnet are the focus of a major investment drive

The projects will give a boost to civil engineering, construction and equipment suppliers.

ith a combined turnover of R83 billion (£6.6 billion) and combined assets of R175 billion (£14.4 billion) state-owned enterprises (SOEs) have a key role to play in the development of South Africa’s economy. But while strategically important operators will remain in state hands, non-essential assets are being sold off and sectors previously monopolised by the state are being opened up to private sector participation through concessions, joint ventures and public-private partnerships.

“We are entering a phase where we have to make SOEs work with the private sector to operate and finance components of the overall infrastructure systems that we are seeking to build to world-class levels of efficiency and capacity,” says Minister of Public Enterprises Alec Erwin.

Two of the most important industries in which SOEs will continue to play a dominant role are energy and transport. Both Eskom (electricity) and Transnet (transport and logistics) will remain state-owned enterprises, but the scale of the investment they need makes increased private involvement in the sectors inevitable.

“We are embarking on a major investment drive,” says Mr Erwin. “In electricity some R95 billion (£7.8 billion) and in Transnet some R40.8 billion (£3.3 billion) projects are planned for the next five years. Whilst this will clearly impact positively on our infrastructure, it will also provide opportunities in the capital markets.”

Private companies are invited to join in the overhaul of multi-billion rand sectors

The energy sector is undergoing a long-term reform process in its structure – generation, transmission and distribution – and in the diversification of energy sources.

With peak demand at 34,000MW, billions of rand are being invested in raising Eskom’s capacity from its current 35,000MW.

“We are opening up the generation system, which up to now has been almost entirely Eskom, to independent power producers (IPPs),” says Mr Erwin. “The bulk of the generation will be done by Eskom and over the next decade we will introduce structural features that will move us towards a market based energy system.”

Alec Erwin
Minister of Public Enterprises

“We are seeking to build world-class levels of efficiency and capacity”

Eskom will invest R84 billion (£6.9 billion) over the next five years and is in the process of disposing of up to 14 non-core enterprises and assets. An additional R23 billion (£1.9 billion) will come from IPPs, who will bid for exclusive rights to build, own and operate new plants. Eskom will buy the IPP power through power purchase agreements.

The transport and logistics company Transnet has seen a remarkable recovery under new management after being close to insolvency last year. Indeed, the turnaround has been so rapid that it is able to finance an infrastructure investment programme worth R40.8 billion (£3.3 billion).

Private companies are being invited to take part in joint projects on the railways and in container and other terminal operations.

Transnet will focus on freight: rail operator Spoornet, the National Port Authority (NPA), South African Port Operations (SAPO) and Petronet, the liquid petroleum and refined products distribution company. South African Airways will become a stand-alone enterprise and 13 non-core entities will be disposed of.

Spoornet is to spend R8 billion (£661 million) on locomotives, wagons and equipment. Almost R3 billion (£248 million) is to be spent upgrading Durban harbour, Africa's busiest port. A further R2.6 billion (£215 million) will be spent on the container terminal at the new Coega port, and R1.4 billion (£115.5 million) on expanding the container terminal at Cape Town.

Petronet is set to construct a R3 billion (£248 million) multiproduct pipeline to move petrol, diesel and jet fuel from Durban to Gauteng. The largest project of its kind ever undertaken in South Africa, the pipeline will boost sectors such as engineering and construction, equipment and pipeline suppliers.