Price hikes threaten profitability of SOEs

THE continued increase in fuel prices was impacting on the cash flow of state-owned enterprises (SOEs) and has led to a hike in their operational costs.

This was revealed by the Minister of Public Enterprises, Pravin Gordhan, in a written reply to a parliamentary question from the EFF’s Marshall Dlamini yesterday.

Gordhan’s reply came hours before petrol increased by R1.00 per litre, bringing the price to R17.08 inland while diesel went up by R1.24 a litre.

Dlamini wanted to know what Gordhan found to be the impact of the increase on the SOEs.

Gordhan said despite fuel consumption monitored at Alexkor on a daily basis, the fuel price had an impact on the cash flow. There was no doubt with the latest fuel price increase, the situation would worsen.

“The impact will increase more significantly if the level of business activity increase as envisaged in the mid to long-term,” he said. Gordhan said Denel spent R6503 836.81 on fuel in the 2017/2018 financial year.

He said the SA Forestry Companies Limited (Safcol) was negatively impacted as fuel costs continue to rise at a rate that is above inflation. Safcol is forecasting an increase in direct costs of about R8860254 and the higher the increase in fuel price, the more difficult it was to operate a profitable business.

Gordhan said the increase would impact Transnet’s operational and financial performance.

“Based on estimated annual fuel utilisation, net of recoveries from freight customers, and excluding the impact to the regulated parts of the business, an increase of R1 in the price of fuel will result in a decrease in Transnet profitability of approximately R120 million per annum.”

Turning to Eskom, Gordhan said an increase in fuel prices above budgeted levels would result in cost overruns.

“Implications of fuel price increases to the turnaround plan are that targeted areas of cost reduction would be squeezed to provide further savings, since the fuel cost increases would erode these savings.”

Eskom spent R3.037 billion on fuel related products in 2017/2018.

“As long as future fuel price increases are below inflation levels, there should be no risk to the turnaround initiatives being driven within Eskom at this point.”