Is arivia a victim of privatisation?

It would be a difficult task to generalise about the global successes or failures of privatisation, as - statistically - a case can be built for either scenario. However, it can be safely said that in some cases it works and in others it simply doesn't.

Where it has worked, broadly speaking, benefits are usually reaped by the new private owners, mainly at the expense of the consumer, who pays more for the company's products and services. There's nothing sinister about this. Private companies usually do not enjoy state subsidies and, at the same time, have to function as profitable businesses - the costs have to be passed on to the consumer.

While there are a multitude of reasons for privatisation either succeeding or not, it is fair to say some state-owned assets should not be privatised.

In some cases, companies are created to function as government-owned entities and their business models would not support private shareholding. In other cases, businesses have been created by government, for government, and would likely not have much place in the private sector. Also, it can be argued, some strategic assets should not be placed in private-sector hands, as these would not be able to perform optimally without government backing and would thus cease to provide low-cost services to the masses.

A few years ago, government announced an ambitious privatisation plan and promptly started looking into shedding assets such as Eskom, Transnet, Denel, South African Airways (SAA) and a host of others. About two years ago, and after varying amounts of success, the state revised its position on privatisation. It was decided that, in keeping with the principles of being a developmental state, SA should leave its strategic assets in government hands.

One of the few successfully completed privatisations was that of Aventura Resorts, in 2003, which sold for R200 million to an American investor. However, other attempts, such as the proposed sale of the Komatiland Forests, Alexkor and the Airports Company of SA, have either gone badly and have been scrapped, or have not even been seriously attempted at all.

The revision of government's privatisation policy has, therefore, meant that assets, such as Eskom, Transnet and SAA will, for now at least, remain in state hands. Again, cases for and against this can be argued.

Regardless, public enterprises minister Alec Erwin is still driving the streamlining of state-owned enterprises, which calls for public sector entities to exit non-core assets and focus on primary business. This is where state IT outsourcer arivia.kom fits in.

In what has become one of the most closely followed sagas in the IT sector in recent years, the state is in the process of withdrawing its interests in the company, which are held through Eskom (58.5%) and Transnet (41.5%). Now the profitability, sustainability and skills pool at arivia has been the subject of much debate in the IT sector, and has flared up again, with renewed vigour, as government announced its exit plans.

Unfortunately, government has remained tight-lipped about the state of play at the company, but its annual results last year show it fell short of expected revenue and profit - despite an expensive and protracted turnaround exercise. What is also known is that the company has lost some key management figures, including CEO Zeth Malele and COO Hugo Knoetze, who was with the company since its inception in 2001.

An entity such as arivia is simply worthless to the private sector and only seen as a means of securing lucrative government work.

Martin Czernowalow, news editor, ITWeb

Now, while government has ambitious plans to see a first-tier IT services group take arivia, this seems like wishful thinking. At least if government believes the company will be kept in one piece and allowed to function as is. It must be kept in mind that arivia is a prime example of a company established by government, for government. Its sole purpose was to provide IT services for Eskom, Transnet and Denel. Can it thus survive in the "real" world, among private sector competitors? It's doubtful.

Government must know this, and to attract buyers, the company will be sold with two five-year contracts in place - for providing IT services to the power and electricity utilities, as well as the National Ports Authority. These contracts are worth R900 million over their duration, and have created much interest among prospective buyers. Would they have touched arivia without these? No, is the simple answer.

An entity such as arivia is simply worthless to the private sector and only seen as a means of securing lucrative government work. That's how the "real" world works. Short-listed as bidders for the company are T-Systems, Accenture, Business Connexion, Dimension Data and Siemens Business. All of these have the resources to service the Eskom and Transnet contracts, without buying the whole of arivia and its complexities.

Unfortunately, unlike SAA or the Komatiland Forests, it would be unsustainable for government to hang on to arivia if it decided to halt the deal at the last minute - as has been the case with many privatisation attempts of bigger assets. Despite the couple of hundred jobs at stake, the company is simply too small and not strategic enough for government to carry.

So, it is highly likely that, as soon as the sale goes through next year, arivia will begin a journey into oblivion.