Telkom exempted from laws

SA’s finance minister has exempted Telkom from the provisions of the Public Finance Management Act and Preferential Procurement Act.

Johannesburg - Finance Minister Pravin Gordhan has exempted Telkom from the provisions of the Public Finance Management Act (PFMA) and Preferential Procurement Act.

Read also: Telkom profit drops 27%

In a government gazette published on Monday, Gordhan exempted Telkom from the laws with immediate effect.

Telkom has described the move as a milestone in its history.

Telkom spokeswoman Jacqui O’Sullivan said yesterday: “Previously, and in line with PFMA requirements, Telkom has had to go out on tender for major projects. These public tenders take time to complete and result in business plans being made public at a very early stage.

“This is not helpful in the highly competitive and fast-changing world of telecoms.”

Telecoms

O’Sullivan said the exemptions would level the competitive playing fields in the telecoms market.

She said Telkom was now better positioned to pursue growth objectives “in a more flexible and agile manner”.

Telkom was previously wholly owned by the government. But in May 1997, the government sold a 30 percent stake in Telkom to Thintana, a consortium made up of SBC Communications and Telekom Malaysia. This was part of the government’s efforts to modernise Telkom by injecting new skills, technology and funding.

When the PFMA was published, the government was the majority shareholder in Telkom, hence Telkom was listed in schedule 2 of the PFMA, as a “major public entity”, O’Sullivan said.

In March 2001, the government disposed of a further 3 percent equity interest in Telkom to Ucingo Investments, a consortium of black empowerment investors.

The government sold more shares during the course of Telkom’s initial public offering (IPO) in 2003, thereby further diluting the government’s shareholding in Telkom to 39.8 percent of the issued shares in Telkom.

Telkom listed its shares on the JSE on March 4, 2003.

Share sales

When Telkom listed, the JSE granted extraordinary rights to the government in Telkom’s Memorandum and Articles of Association, which would endure for a period of eight years. These included the government’s right to appoint the chairman and six of the directors to the Telkom board. It would also be regarded as a Class A shareholder.

In terms of these rights, the government controlled Telkom up and until March 2011 when the rights expired, she said.

Since March 2011, when the extraordinary rights of the government expired, Telkom requested that it and its subsidiaries be delisted from schedule 2 of the PFMA.

The government indicated that they, at that time, did not want to delist Telkom (and its subsidiaries) from the PFMA, but granted a further exemption from the PFMA and the Treasury regulations in November 2013.

As Telkom was still listed in schedule 2 of the PFMA, it and its subsidiaries still had to comply with certain provisions of the PFMA that it had not been exempted from and also had to comply with the Preferential Procurement Policy Framework Act and its regulations.

O’Sullivan said Telkom and its subsidiaries, especially information technology services company BCX, had to compete with other licenced telecoms operators – such as Vodacom, MTN, Cell C, Dimension Data – that did not have to comply with the rigid legislation.

This, she said, had put Telkom at a disadvantage. “We approached the government to exempt Telkom from the remaining provisions of the PFMA... On July 8, 2016, the government granted Telkom and its subsidiaries the further exemptions,” she said.

Telkom closed 0.76 percent lower yesterday at R65 a share.

BUSINESS REPORT