SOEs TO BE PRIVATISED?

Finance Minister hints at possible privatisation after decision to reconfigure SOEs

FINANCE Minister Tito Mboweni yesterday hinted at the possible privatisation of state-owned enterprises (SOEs), charging that it could no longer be business as usual within the parastatals.

In a major policy shift in recent times, Mboweni told Parliament in his maiden Medium Term Budget Policy Statement that the government had taken a conscious decision to reconfigure the SOEs. While Mboweni refrained from naming parastatals that would be put up for sale, he said when Swissair failed, the Swiss government sold the airline.

“In the reconfiguration we need to be open-minded,” said Mboweni. “Reconfiguring our SOEs requires us to take a hard look at how they operate. Our current challenges with SOEs present an opportunity to demolish the walls that exist between the private and public sectors.” Eskom and SAA have been particularly identified as causes for concern for the country’s fiscus.

Mboweni also said SOEs remained a risk to the country’s growth prospects and that billions in guarantees would put the fiscus under further strain.

He said the proposed restructuring would include private equity partners and selling some of the parastatals.

The National Treasury said most SOEs had weak balance sheets.

It said government guarantees were currently sitting at R670 billion, and if creditors were to recall their loans this would create a crisis in the economy.

Eskom had the largest guarantee, sitting at R350bn. The Treasury said the government would give SAA a special allocation of R5bn to settle its loan before March next year.

“This will help to prevent a call on the airline’s outstanding debt of R16.4bn, which is guaranteed by the government,” stated the National Treasury in its budget policy statement.

The Treasury said SEOs had raked in R334bn in guarantees with no prospects of improving their liquidity challenges.

It said the entities would struggle to refinance maturing debt as investors increasingly required guarantees in order to provide financing.

“In 2016/17, the latest year for which figures are available, the combined liabilities of national public entities and SOEs totalled R1.6 trillion. The interest-bearing debt of the 10 SOEs that borrow most has grown from R226.7bn in 2009/10 to R702.7bn in 2016/17, an increase of 163 percent in seven years,” the Treasury warned.

“This debt is expected to increase to more than R1trln over the medium term. Although the increase in debt has largely financed capital expenditure, a growing proportion of debt is now financing operations and interest payment,” emphasised the budget policy statement.

The Treasury also said large SOEs would have to refinance debt at higher interest rates, which would impact on their profitability and operational cash. This would cause problems for them to meet their financial obligations in future.

“Companies unable to refinance debt face the prospect of immediate repayments, which may require them to sell assets or otherwise decrease their operating costs,” it said.

SIYABONGA MKHWANAZI