NATIONAL FRAMEWORK AGREEMENT (NFA)

1. PARTIES

1.1 Government of National Unity (GNU) represented by Ministry for Public Enterprises, the coordinated Ministry of the restructuring process.

1.2 Labour comprising the Congress of South African Trade Unions (COSATU), the Federation of South African Labour Unions (FEDSAL) and the National Council of Trade Unions (NACTU).

2. PURPOSE AND STATUS OF THE NFA

2.1 To establish an agreed process, based on stated objectives and principles, between the parties in regard to the restructuring of certain State Assets.

2.2 The status of the agreement is defined by the mandate of the National Economic Development and Labour Council (NEDLAC). Accordingly this agreement does not replace the sovereignty of Parliament. The National Framework Agreement (NFA) shall be a bilateral agreement between the GNU and Labour that, in the interests of transparency, shall be tabled for information at the Executive Council of NEDLAC.

2.3 The parties shall bide by their respective obligations as set out in this agreement.

2.4 This agreement and all structures emanating therefrom shall be valid until 27th April 1999. The agreement will nevertheless remain in effect until renewed for terminated.

3. BACKGROUND

The GNU came to power confronted with an enormous range of problems, most alarming being a 40% rate of unemployment. State institutions had been used to entrench minority privilege. They should now be used address the apartheid legacy and promote employment and service delivery to people who were disadvantaged.

In order to resolve these problems, state institutional reform must be a major element of the Reconstruction and Development Programme.

4. OBJECTIVE OF RESTRUCTURING

Labour and Government are committed to the provision of affordable, good quality basic services to all South Africans.

The initiative to restructure State Assets is part of the process of implementing the RDP. Government has concretised some of these objectives in its so called "six pack" programme namely: belt tightening: reprioritisation of state expenditure; restructuring of state assets and enterprises; restructuring of the public service; building new inter-governmental relations; developing an internal monitoring capacity for the above programmes.

Government and Labour recognise the legitimacy of the state playing a role in productive sectors of the economy. Therefore, restructuring is not necessarily geared towards reducing state economic involvement in any economic activity.

The main objectives of restructuring are as follows:

4.1 INCREASE ECONOMIC GROWTH AND EMPLOYMENT

The effectiveness, sustainability and viability of State Owned Enterprises (SOEs) is vital to the objective of maintaining and generating employment opportunities.

4.2 MEETING BASIC NEEDS

Restructuring should be geared to meet the basic needs of all South Africans with the focus on the poor and disadvantaged communities.

Critical to this objectives is the improvement of the quality and delivery of affordable services. Restructuring of state assets such as housing, land and other infrastructure should be rationalised within sectoral policy to meet RDP objectives.

4.3 REDEPLOYMENT OF ASSETS FOR GROWTH

To enhance growth and employment it is necessary to redeploy assets. Accordingly any proceeds from the restructuring process should be reinvested in assets and not used for consumption.

4.4 INFRASTRUCTURAL DEVELOPMENT BY MOBILISING AND REDIRECTING PRIVATE SECTOR CAPITAL

This is essential in financing the development costs of infrastructure - house, water, energy, communications and transport - required to meet already articulated service expansion goals.

The burden on public finances, particularly for infrastructure development, is enormous. On average, half of government investment is accounted for by the infrastructure sector and, as the industrial economy expands, the demand will become greater.

The principal new infrastructure providers include international firms operating in association with local companies. These firms bring to bear not only the management expertise and technology but also the credit standing and ability to finance investment. Sustainable borrowing could be used in part to meet capital needs.

4.5 REDUCE STATE DEBT

Where appropriate, restructuring proceeds may be used along with improved financial management systems to reduce state debt.

It is essential that in the provision of essential services effective regulatory mechanisms are established. This applies in all circumstances no matter what the structure of the industry providing that service. Accordingly, appropriate legislation and constitutional mechanisms to facilitate the restructuring process at national and provincial levels should be provided. Regulatory structure should be staffed by knowledgeable persons and operate autonomously.

4.6 ENHANCE COMPETITIVENESS AND EFFICIENCY OF STATE ENTERPRISES

It is essential that individual state enterprises should be competitive and efficient in the domestic and international markets and should be positioned to access global resources and markets, particularly in Southern Africa, within a proper institutional regulatory framework.

It is also essential that there are improvements in corporate governance within the public sector to allow for effective asset management, investment policies, accountability and transparency. A complete audit of all State Owned Enterprise holding, properties and their assets will be conducted.

4.7 FINANCE GROWTH AND REQUIREMENTS FOR COMPETITIVENESS

In the utility sector there is large demand for development programmes which necessitates an increase in the operations of state enterprises in this sector. By and large most of the state enterprises in this sector are already highly geared i.e. the ratio of borrowing to equity capital is too high.

Therefore, new financing through different forms of domestic and foreign partnerships to promote the infusion of capital and especially technology may be required.

4.8 DEVELOP HUMAN RESOURCES

Restructuring should develop the human resources capacities of South Africa through decent employment conditions, efficient use of training and retraining , redressing previous discriminatory practices and enhancing, technical and managerial capacity.

5. GUIDING PRINCIPLES FOR RESTRUCTURING

5.1 RE-ORIENTATE AND ENHANCE PUBLIC SECTOR EFFICIENCY

The purpose of restructuring state assets is to re-orientate and inhance the public sector's ability to meet the challenges and requirements identified by the RDP. In this context, it is the role which the enterprise can play in achieving transformation and transition goals as set out in the RDP which should inform decision-making. This requires new structures, new mandates and change management.

5.2 LEGAL AND REGULATORY

The legal and regulatory framework engenders positive economic benefits in the development process. It is necessary to ensure that the laws and regulations relating to, for example, property, labour standards, monopolies, foreign investments, export incentivies, environmental issues, capital markets and financial instruments are all consistent with and designed to support the government development initiative.

South Africa has already begun this process by developing White Papers to cover the broad range of regulatory reforms and to ensure that the process of public sector restructuring is transparent and leaves no ambiguity in the implementation.

5.3 LABOUR

Organised labour in general and employees of the relevant public enterprises should participate in policy formulation processes. In addition the labour rights, obligations should not occur at the workers in state enterprises.

The ultimate aim of restructuring is to improve the quality of life of all South Africans. Therefore, the underlying approach is that restructuring should not occur at the expense of the workers in state enterprises. Every effort should be made to retain employment.

Where restructuring potentially has negative consequences for workers, a social plan must be negotiated with the relevant unions at the enterprise level which takes account of the worker's interests.

Workers who may be redeployed within or between state enterprises shall enjoy equivalent benefits and conditions of employment as they enjoyed in their previous employment.

A coherent and common set of principles need to be developed and applied by Government to the structuring of pension and provident funds which are already undergoing massive restructuring. These principles must take into account the fundamental changes to State Owned Enterprises configuration which will follow restructuring.

5.4 INTEGRATION OF STATE ASSETS

All assets, regardless of where they are situated, must be examined within an overall sectoral policy framework and wherever possible reintegration of apartheid divided assets must occur prior to restructuring. The state assets in the former TBVC states are included.

5.5 HISTORICALLY DISADVANTAGED GROUPS

Restructuring must redistribute wealth, boost the small and medium enterprise sector, have sustainable affirmative action implications and facilitate genuine black economic empowerment.

The capacity of the historically disadvantaged communities to participate and benefit fully in the restructuring programmes should be ascertained and enhanced. Special attention shall be paid to the needs of entrepreneurs, and the role which pension and provident funds could play in broadening ownership.

In addition investment decisions and asset dispensation of SOEs in the context of overall economic policy rather than piecemeal equity transfers are key elements in achieving the restructuring elements above.

5.6 PARTICIPATION TRANSPARENCY

All key stakeholders should be full participants in the policy formulation process, Boards of Directors and other appropriate decision-making structures at an agreed level. The policy formulation process should be transparent in all respects. Agreement shall be reached on the procedures for the conveying and protection of commercially sensitive information and operations.

5.7 MACRO-ECONOMIC STABILITY AND GROWTH

It is not assumed that the transfer of assets between public and private sectors will automatically promote the objectives of growth and employment. Accordingly, the restructuring of the state and enterprises will take place within stated policy objectives and be evaluated for their overall macro-economic effect in respect of savings, investment, the balance of payments, ownership and their net effect on employment creation and growth. Macro-economic evaluation in the context of the RDP is essential within this process.

5.8 INDUSTRY SECTOR AND ENTERPRISE FOCUS

The restructuring mechanism and process will be guided by circumstances prevailing in each industry sector as well as those in each of the individual state enterprises.

The process will involve the assessment of socio-economic imperatives; a sectoral approach; and an enterprise by enterprise case study focus.

5.9 NEW ECONOMIC PROJECTS

The restructuring of state enterprises should be designed to encourage domestic and foreign investors to invest in new economic projects.

5.10 FOREIGN INVOLVEMENT

In the event of direct foreign involvement in restructuring, the extent of such involvement should be negotiated within the affected enterprise.

5.11 OWNERSHIP

Ownership is not the determining factor for efficient operations.

5.12 MODELS OF STATE ASSET RESTRUCTURING

Models of state asset restructuring adopted elsewhere are not necessarily appropriate to South Africa's special conditions.

5.13 TRANSITION PERIOD

At present regulatory policy is being formulated in a continually changing environment. Therefore certain urgent changes are required. Accordingly

1. where negotiations are proceeding by mutual agreement of the parties involved they are to continue
2. where there has been mutual agreement on issues these will be implemented, and
3. new and currently contested initiatives will be implemented in terms of the NFA.

These initiatives need to take into account both current policies and regulatory frameworks, whilst they also need to consider the direction and proposed new policy and regulatory frameworks.

6. THE STRUCTURES ENVISAGED IN TERMS OF THE NFA

6.1 THE STRUCTURE

The NFA is a bilateral agreement between Government and Labour established in terms of clause 2 above. It addresses matter that specifically concern Government and Labour in the restructuring process.

There shall be a 3-tiered structure as follows.

Tier One
This structure is internal to the parties. Government and Labour recognise each other's right to establish its own structures. The Government has established Sectoral Task Teams to examine the restructuring options. The Task Teams (TTs) prevail until their reports are produced. Thereafter, the Sectoral Minister's Sub-Committee will take over.

Tier Two
This structure shall be the strategic implementation level set up in terms of this NFA. The composition will comprise a core of 6-a-side from Labour and Government but others will be drawn in as and when required. Appropriate sub-committees and adhoc committees will be formed as and when necessary.

This NFA structure will continue to prevail until the NFA terminates as envisaged.

Tier Three
This structure shall be at an enterprise level. It comprises the Boards of Directors as mandated by the Cabinet and a Labour/Management Committee.

6.2 THE PROCESS

Labour and Government recognise the right of all role players to develop their own mandates, receive advice, and shape their views on the process of restructuring. The Government's internal structures as reflected in the diagram indicate that Cabinet will make all final decisions on both mandate and implementation, subject to parliamentary approval where required.

The work of the Cabinet will be coordinated through a Ministerial Committee while sectoral work done initially through the Sectoral Task Teams will be coordinated through Ministerial sub-Committees per sector. Government could have internal advisers, both at the general level as well as the sectoral level.

The main function of the NFA structure will be to act in terms of the NFA. More specifically it will serve the following functions:

1. to explain the Government's position, share and discuss strategic and policy documents that have a material impact on the restructuring discussion; also, all materials used by Government sub-teams and Ministerial sub-committees used to formulate Government's mandate as well as information developed by advisers to the enterprises will be made available strictly in terms of the normal confidentiality agreements, e.g. the provisions of the Labour Relations Act. As stated in clause 5.6 agreement shall be reached on the procedures for the conveying and protection of commercially sensitive information and operations.
2. on policy and strategic issues, there shall be liaison with the Government Ministerial Sectoral Sub-Committees as and when necessary. For issues on which the Government has already initiated processes and has mandated views, these should be discussed within this structure. Issues where no mandate exists, discussions will take place within, this structure prior to recommendations being made to Cabinet.
3. to agree on the form, appointment and number of advisers to Labour at the NFA structure level. The appointment of such advisers must be transparent, avoid duplication and subject to budgetary constraints.
4. to facilitate, through the Board of Directors, the form appointment and number of advisers to Labour at an enterprise level in a transparent manner. Such monies to be made available by the enterprises.
5. to resolve disputes between management and labour at an enterprise level in terms of the procedures contained in the Labour Relations Act. Only policy and/or strategic disputes to be referred to the NFA.

In the event of labour and management being unable to agree on whether or not a particular dispute is of a policy and/or strategic nature, such disputes will be referred to the NFA structure.

In relation to the process at enterprise level Government will act with and through its Board of Directors in terms of Cabinet mandates. Restructuring proposals will be tabled in terms of the NFA and any measures agreed through discussions at the NFA Structure level. Such proposals will be negotiated through the collective bargaining process in terms of the Labour Relations Act or, where no bargaining structures exist through structures established, by agreement between management and employees to agree on the details and procedures for implementation of any restructuring.

7. DEFINITION OF TERMS IN RESPECT OF A MATRIX OF SOEs WITHIN VARIOUS CATEGORIES

The definition of terms is to facilitate the clarification of terminology but does not prescribe any particular course of action in any particular restructuring process.

7.1 STATE OWNED ENTERPRISES(SOE'S)

Also referred to as public enterprises or parastatals, which provide goods or services. The Stated is the controlling or sole shareholder and acts as the steward of these assets on behalf of all South Africans.

7.2 REORGANISATION OF STATE ASSETS

Refers to the overall programme of restructuring state assets to meet the objectives as set out in this agreement and includes all four government task groups dealing with fixed assets, public corporations, pension funds and the guidelines on the restructuring of public enterprises.

7.3 RESTRUCTURING

Refers to substantial changes as they affect ownership and control, accountability, function and location of state assets.

7.4 PRIVATISATION

1. Refers to the policy of converting public ownership of an asset to the private sector or
2. permitting the performance of a certain activity, hitherto carried out by a state owned enterprise, by a private sector business.

7.5 JOINT VENTURE

Refers to a situation where two or more enterprises, whether private or public, work together on an economic activity.

7.6 STRATEGIC ALLIANCE

A contractual arrangement based on technology transfer and/or management contracts within long term strategic projects.

7.7 COMMERCIALISATION

Refers to a state corporation which operates on a cost recovery basis in the market place.

7.8 CORPORATISATION

Refers to commercialisation and registration in terms of the Companies Act.

7.9 GOLDEN SHARE

Refers to Government, following privatisation, retaining the right to intervene in management decisions and to ensure compliance with Government policy. It does not necessarily confer the right to dividends to the Government.

BACKGROUND DOCUMENTS

1. National Economic Development And Labour Council Act No 35 of 1994.
2. Discussion Document By the Government of National Unity on the Consultative and Implementation Framework for the Restructuring of the State Assets 25 July 1995.
3. The Reconstruction and Development Programme - A Policy Framework -ANC
4. White Paper on Restructuring and Development - Government Gazette Number 16085 - 15 November 1994.
5. Other relvant Cabinet/Nedlac documents

Signed on behalf the parties at Cape Town on 7 February 1996 by: