Godongwana (finally) shows SOES some tough love
State-owned enterprises were given no new bailouts in a surprise move by the finance minister
Finance Minister Enoch Godongwana is taking a new approach to wean state-owned enterprises (SOES) off taxpayer-funded bailouts.
Godongwana wants SOES to stand on their own and only approach the government for financial help once they have shown demonstrable progress in implementing measures to reform their operational and financial situations. It is the tough-love approach Godongwana promised when he was appointed finance minister in 2021.
Bailouts for SOES in the past have been funded through borrowing, which has pushed the government’s debt to unmanageable levels – from R1.58-trillion in 2013/14 to R5.21-trillion in 2023/24.
Godongwana has awarded SOES support worth R281-billion in the past three years. These bailouts, mainly to Eskom, Transnet and SAA, are significantly more than the annual budgets of health (R271-billion in 2024), peace and security (R244-billion), and community development (R265.3-billion).
Godongwana argued that the bailouts were necessary to support the turnaround plans of SOES and that some of them are “too big to fail” – mainly Eskom and Transnet.
But he is doing things differently in the 2024 Budget by enforcing strict conditions on bailouts. No new bailout money was allocated to SOES, which came as a surprise because Transnet and the Post Office have immediate funding needs. Without support from the government, the operational and financial sustainability of these SOES remains uncertain.
Bailout snub
The Post Office, which is in a business rescue process, requires financial support of R3.8-billion to fund the implementation of its rehabilitation and restructuring plan. The money will be used to pay retrenchment packages to workers as 6,000 jobs are due to be cut, pay creditors (owed about R3-billion, though they will be asked to accept losses) and shut 600 Post Office branches to cut the company’s costs.
The 2024 Budget highlights only the R2.4-billion that was allocated in 2022 to fund the Post Office’s business rescue process. This money is yet to be transferred to the SOE because it is required to meet certain
conditions first, such as showing demonstrable progress in implementing its business rescue plan. The R2.4-billion that the government has allocated creates a shortfall of R1.4-billion.
Transnet is also facing the same problem, as no new money was allocated to the state-owned freight rail and ports operator. Transnet’s board has asked for R100-billion to fund a turnaround plan, in which the SOE will bring in the private sector to run trains independently by May 2024 and to invest in infrastructure. On the port operations side, Transnet is expected to finalise its partnership with a private sector company by April 2024 to upgrade a container terminal at the Durban port.
Godongwana was emphatic that he first wants to see the Transnet board embrace and implement the turnaround plan before he will entertain the question of further financial support. The Treasury said Transnet will have to rely on the R47-billion guarantee government allocated to it in December 2023, which will go towards helping the SOE to repay debt.
A guarantee is not an immediate cash injection or bailout. Guarantees are given to help SOES to raise new debt with banks and other funders or settle existing debt obligations, especially when they come up for repayment.
Of the R47-billion guarantee, Transnet has been approved to use only R14-billion between December 2023 and March 2024 to pay off maturing debt. But the government guarantee will not be enough to help Transnet, considering it has debt worth more than R50-billion due in the next three years.
Godongwana is aware of Transnet’s funding pressures but said the SOE had to find its own way out.
“I know there are people saying that Transnet needs a cash injection because they are owed money and want to be paid. No. We are engaging with Transnet to do the right thing so that they are able to sustain themselves and service their debt. We believe they can do this if they do the right things,” said Godongwana during a briefing with journalists.
The Treasury wants Transnet to sell noncore assets, reduce its cost structure, and explore alternative models for infrastructure and maintenance by partnering with the private sector.
The dysfunction of Transnet’s rail network (with exporters unable to rail their goods to market) and port operations (with importers who cannot offload their containers on time) has negatively affected government’s revenue from tax collections by at least R50-billion in 2023 and cost South Africa as much as 5% in lost GDP growth.
No new bailout money was allocated to SOES, which came as a surprise because Transnet and the Post Office have immediate funding needs
Private sector support
The good news is that the private sector is committed to working with Transnet to fix its problems.
Duncan Wanblad, CEO of Anglo American, said that Anglo would consider financing any public-private partnership to help to reform Transnet.
“We’ve been speaking to the various arms of government for the better part of 18 months now as we try to find a way through this Transnet conundrum.
“What is going to be needed is a material recapitalisation of some of the infrastructure including the rail and bridges and the locomotive fleet. And that is going to take some time and money. There is no lack of willing participants in some form of public-private partnership. We’d like to participate in this,” said Wanblad.
Wanblad’s views were echoed by Cas Coovadia, CEO of Business Unity SA, the country’s biggest business organisation. “We appreciate the acknowledgment [by government] of the need for greater collaboration between the private sector, state-owned enterprises and government departments,” said Coovadia.