The truth about privatisation Article prepared for Business Times by President Willie Madisha, 23 August 2001

Last week’s article by Andile Nkuhlu of the Department of Public Enterprise (DPE) about the privatisation debate contains a host of misleading statements about COSATU and the current process of restructuring state assets.

The most annoying misrepresentation, which the DPE insists on repeating in the face of all the evidence, is that COSATU helped draft the DPE’s Policy Framework on restructuring state-owned enterprise.

This is simply untrue. The DPE conveniently suppresses the fact that it ignored virtually all our criticisms of the document – and that as a result, COSATU issued a press statement disagreeing with the document the day it was published.

COSATU did make extensive comments on drafts of the document, and held long meetings with officials to debate it. But we were never empowered to change a comma in the document, and the officials involved rejected almost all our points. The only visible impact of our work was the agreement that restructuring should include a comprehensive social cost-benefit analysis – an agreement that the DPE has subsequently failed to implement.

A similar process occurred with the Eskom Conversion Bill, which Nkuhlu also cites to demonstrate the DPE’s commitment to consultation with labour. We did indeed talk to government interminably on the subject. But government budged not at all from its original positions. It certainly did not accommodate most of our concerns, as Nkuhlu claims. Far from it. After DPE officials agreed to amend the Bill to allay our concerns, the department officials who presented the amendments to the portfolio committee convinced the parliamentarians not to adopt them.

Consultation that does not lead to agreement cannot bind the parties. DPE officials seem invariably to forget that self-evident truth. While they show great patience in listening to labour’s inputs, they proceed to reject almost everything we say. What they cannot then expect is that labour will feel bound by their decisions – any more than an innocent person must agree with a judge who wrongly condemns them.

The problem, perhaps, is that the DPE officials have missed their vocation: they should have been psychiatrists, not bureaucrats. They think that if they just listen long enough, we will be happy and soothed – even if they proceed to ignore everything we propose.

The second set of misrepresentations relates to Nkuhlu’s long list of the successes scored by the big parastatals in the past seven years. It is not that the successes are not real, although he certainly puts some in the best possible light. The problem is that the DPE’s current proposals seem likely to reverse precisely these successes.

Let us examine the record of privatisation of the big parastatals under the governance of the DPE.

Eskom has indeed succeeded in extending electrification in the past decade. It paid with about R1 billion a year in untaxed revenues. From 2001, however, government has made Eskom liable for taxation. Government said it would therefore take on the burden of funding electrification – and promptly slashed the budget by half. It increased the amount provided after COSATU protested vigorously. But there are no guarantees that electrification won’t be cut back again in the future.

Indeed, the whole story of the taxation of Eskom points to the DPE’s ineptitude. The DPE argued that taxes paid by Eskom would compensate the budget for the cost of electrification. Apparently it did not know that SARS had agreed to let Eskom off taxes for the next few years, so that it can gear up for the expected private competition. Result: the fiscus must now pay for electrification from existing revenues.

Nkuhlu also claims that Eskom promises a 15% discount on electricity prices to the poor. This proposal has not been published elsewhere. In contrast, government’s own consultants argue that the proposals for restructuring Eskom, which involve privatising 30% of electricity generation, will raise the cost of electricity to households by at least 20%.

In terms of rail, Nkuhlu argues that Spoornet has upgraded coaches and improved services and safety. But his department proposed concessioning the two most profitable lines in Spoornet’s freight business to the private sector – without, apparently, conducting financial modelling, much less an in-depth analysis of the broader impact on development.

A financial analysis was only conducted at the insistence of COSATU’s transport affiliate, SATAWU. The results: the proposed concessioning would lead to the closure of many rural lines and the loss of tens of thousands of jobs. And in purely financial terms, it would cost government more than the status quo.

Of the four parastatals under the DPE’s control, Telkom has advanced furthest toward privatisation, and the damage is most obvious. It is true that the foreign partner only owns around 30 per cent. But it has veto power over employment and investment decisions – veto power apparently rooted in a shareholder agreement that, oddly enough, remains a closely guarded secret. The public has never had insight into this critical document, although the government, on behalf of all of us, still owns a majority share in Telkom.

True, the government has compelled Telkom to increase access. But the successes are not outstanding. According to World Bank data, South Africa has lagged behind in new land-line connections.

Between 1995 and 1999, middle-income countries as a group increased connections per 1000 inhabitants by 60%, while in South Africa they rose 30%. In 1995, South Africa had about 65% more lines than the average for middle-income countries; by 1999, it had dropped to the average.

One reason for this is that the costs of basic telephones for the poor have risen substantially. The cost of local calls, which benefit the poor, have risen by 35 per cent, while international calls – which are used mostly by business and the well off - dropped 40 per cent. Privatisation and deregulation have led to similar patterns around the world.

Finally, Telkom has laid off 17 000 workers since it brought in private partners. The majority of these workers are less skilled Africans, many in rural areas.

They will likely never find another job. The foreign partners are happy: they want a cash-rich company that can sell its shares profitably in the up-coming IPO.

But our country bears the burden of rising unemployment, which this type of privatisation aggravates.

No one can deny the need to restructure the state, which was designed over decades to meet the needs of a privileged minority.

But the DPE’s headlong rush to privatisation is not going to improve services for the poor, create employment or grow our economy.

That requires much more care and work with stakeholders to define solutions that suit our realities.

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