SOEs paint grim picture
DEBT: GOVT IS WORKING TO REDUCE EXPOSURE But total approved guarantees to entities expected to increase by R33bn to R503.3bn.
Despite the somewhat upbeat message in the budget on energy, the Budget Review painted a dismal and depressing picture of the financial position of state-owned enterprises (SOEs), including Eskom.
It said most SOEs remain in distress due to weak governance, financial strain and poor operational performance.
The review lamented the fact that the expansion of financial support to SOEs is a key driver of South Africa’s increasingly constrained fiscal position.
“Eskom has dominated these bailouts. From 2008-09 to 2022-23, Eskom received R241.6 billion in fiscal support. In some cases, rapid injections through the budget had little to no impact on the service offering.
“For example, South African Airways (SAA) received a total of R48.2 billion over six years and still went into business rescue,” it said.
The review said Eskom and Transnet are implementing reforms in line with their respective debt relief and guarantee conditions, but the progress is slow.
Many SOEs have failed to implement their turnaround plans, resulting in deteriorating profitability, an increased need for guarantees to borrow, and more requests for bailouts, it added.
The review said there is also a growing trend of entities failing to submit their financial statements on time, largely due to going concern issues.
SOE guarantees
The review said government has been working to reduce its exposure, as expressed by the guarantee portfolio of these companies, with loan guarantees issued between March 2022 and March last year declining from R559.9 billion to R478.5 billion.
Total approved guarantees to SOEs are expected to increase by R33 billion to R503.3 billion by 31 March this year, while the exposure amount will decrease by about
R16.6 billion to R416.3 billion. Eskom accounts for 85% of the government exposure.
The main guarantee and exposure changes during 2023-24 were:
A decline in SA National Roads Agency exposure of R8.7 billion to R29.5 billion due to redemptions;
Transnet was granted a new guarantee of R47 billion, with R22.8 billion available for immediate use, to address persistent challenges relating to liquidity and supply chain backlogs; and
Godongwana, in December last year, withdrew historical guarantees from Denel totalling R5.9 billion following the expiration of part of the guarantees and the non-use of another portion.
Over the next three years, government will make three transfers to Eskom for capital and interest payments.
In 2023-24 government will transfer R76 billion, and in 2024-25, a further R64.2 billion to Eskom, with transfers in each of these years R2 billion lower than projected because of the power utility’s failure to conclude the disposal of the Eskom Finance Company, as stipulated in the debt relief conditions.
In 2025-26, government will transfer R40.2 billion to Eskom, and in the same year, it will take over a maximum of R70 billion of Eskom’s debt by switching selected debt instruments into government debt.
Transnet
The review said Transnet’s performance has been very poor, with operations strained by its deteriorating financial state.
The government provided a R47 billion guarantee to Transnet in December last year to assist with maturing debt and the implementation of a recovery plan, with the entity granted approval to use only R14 billion of the guarantee between December 2023 and March 2024 to pay off maturing debt.
This is to ensure that Transnet implements the short-term initiatives in the recovery plan and aligns it with the Cabinet approved roadmap for freight logistics.
Denel
The review said Denel remains unable to fulfil its financial obligation and has not submitted annual financial statements for the last three years despite being allocated R3.4 billion through the Special Appropriation Act in 2022, with conditions related to the implementation of its turnaround plan and future sustainability.