Another R8.5bn to SAA and Post Office
Gigaba ‘draws line in sand’ for badly run state owned entities
STATE-owned entities present a major fiscal risk to the economy but two – South African Airways and the Post Office – will receive R8.5-billion in government funding, putting the country’s carefully maintained expenditure ceiling at risk of a R3.9-billion breach.
Finance Minister Malusi Gigaba announced in his medium term budget policy statement (MTBPS) that SAA was due to receive a further R4.8billion in addition to the R5.2billion it received earlier this year.
This brings the total bailout of SAA to R10-billion in this financial year alone, on top of the many other billions it has received down the years from the state as it has struggled to stay afloat on its own.
The financially troubled SA Post Office has also been allocated a cash injection of R3.7-billion as part of Gigaba’s adjustments to the national budget presented by his predecessor, Pravin Gordhan in February.
Gigaba managed to find new money for the embattled SOEs despite drawing a line in the sand for the badly managed publicly owned companies. “As the shareholder we are tired of being dragged into crises by those we employ to govern and manage state-owned companies.
“The trend of SOCs seeking bailouts to finance operational expenditure, inefficiency and waste must also be brought to an end,” he said.
Gigaba said the state aimed to rope in a strategic equity partner as part of the turnaround plan for SAA.
He said that “recent years have seen several worrying developments with regard to state-owned companies, with governance failures, corruption, operational inefficiency and the need for government bailouts”.
As a result, they had developed “a poor reputation with the public at large” and had become “a major fiscal risk to the country due to government guarantees of their debt”.
In a bid to avoid breaching the debt ceiling, the impact of which would be “quite seve the government is considering selling off assets.
The decision about which assets would be made by March next year, and they hoped to raise R3.9-billion from the sale of assets to cover the fiscal debt ceiling
Telkom shares – which could fetch between R14-billion and R20-billion – have been widely punted as up for sale but Treasury DG Dondo Mogajane said these were performing well and so “we won’t get rid of it just like that – maybe just a little bit”.
He said that after meeting with the recently installed SAA board, he would pronounce on plans to bring in a strategic equity partner.
The MTBPS indicates that government’s “major explicit contingent liabilities are its guarantees”.
Total government guarantees issued to public institutions, independent power producers and public-private partnerships stand at R688.8billion.
The largest of these at R350billion is to Eskom.
In his speech, Gigaba lists Eskom’s governance issues as “a major concern” and its “failures of governance, leadership and financial management” as “of grave concern”.
“As government guarantor over a significant portion of Eskom’s debt, it has become a significant risk to the entire economy,” he said.
“Eskom is simply too important to the country to fail and we will not allow it to.”
He promised that a new board would be in place at the power utility by the end of November, together with a “credible” management team.
Figures presented in the MTBPS indicate the state owned entities have become sharply less profitable.
The combined profitability of the entities, measured by return on equity, declined from 7.5% in 2011-12, to just 0.2% in 2017-17.
“Lenders, alarmed by governance failures, are taking a more active stance” with state owned entities struggling to raise debt, or having to refinance at higher rates.
Total interest payments by state-owned companies are projected to increase from R49.8-billion in 2017-17 to R69.3-billion in 2019-20. — DDC