Malusi Gigaba, the Public Enterprises Minister, would not comment on reports that in the past few days the National Treasury had provided the crucial multibillion-rand guarantee that was needed to finalise SAA’s 2012 financial accounts, a spokesman for the minister said yesterday.
Mayihlome Tshwete told Business Report that the minister would only make an announcement on the matter at the airline’s annual general meeting on October 15.
Yesterday the Treasury would neither confirm nor deny the speculation about the guarantee being provided.
The department’s failure to secure the guarantee in time for the SAA board to meet a number of regulatory deadlines was the reason for the final collapse in relations between Gigaba and the board.
In a dramatic move last week the chairwoman, Cheryl Carolus, and seven of her co-directors announced their resignation with immediate effect citing lack of support from the department. Most of the directors were appointed by the former minister, Barbara Hogan.
Without the guarantee PwC and Nkonki, SAA’s joint auditors, were unable to finalise the accounts without qualifying them, which meant that SAA’s financial statements could not be tabled in Parliament. This placed the directors in an extremely vulnerable situation as they are deemed to be responsible for the statements.
In terms of the Public Finance Management Act (PFMA), the Companies Act and the King Code on corporate governance, the directors of SAA are responsible for ensuring that the parastatal’s financial accounts are submitted timeously.
The PFMA requires that the accounting authority, which is the board, “must submit within five months of the end of a financial year… the annual financial statements for that year”.
The Companies Act requires that a company, which includes a state-owned entity, must prepare annual financial statements within six months after the end of its financial year.
The King Code’s principles require that directors meet their reporting responsibilities and “adhere to non-binding rules, codes and standards”.
The strained relationship between the board and the minister, who represents the government, SAA’s sole shareholder, became unworkable after the minister blamed the board for the delay in finalising the financial statements.
Reflecting the crucial importance of the timing involved in the controversy, Carolus told journalists last week: “I have a stamped receipt from the Department of Public Enterprises showing that the statements were received by them on August 31. All that was outstanding was a letter from Treasury indicating that it would support SAA if the oil price continued along its forecasted path.”
As part of their auditing function PwC and Nkonki are required to interrogate SAA’s cash flow projections for the upcoming financial year and would have to do projections under different scenarios. Critical factors in such an exercise would include possible further increases in the fuel price as well as the company’s ability to pay for planes that were ordered years earlier.
“The auditors would have to do ‘stress tests’ on the balance sheet to determine whether or not SAA would be able to meet its payment obligations under various scenarios and to the extent that the company’s own balance sheet could not meet these obligations, a guarantee from the government would be required,” an independent auditor told Business Report.
Such guarantees are commonly used by state-owned enterprises.
SAA’s annual report for 2012 reveals that it had a R1.6 billion “going concern” guarantee from the government in that year. The need to make payment for the delivery of aircraft ordered several years ago and the sharp hike in the price of fuel have combined to significantly increase the size of the guarantee needed to a reported R4bn to R6bn.
The responsibility for getting the guarantee from the Treasury lies entirely with the department and involves, as one source described, a “formal process with adherence to strict protocols”. The process involves an interrogation by the Guarantee Certification Committee, which would attach conditions to the guarantee.
An audit of the paper generated by such a process would quickly clarify where responsibility lies for a damaging public spat, which has resulted in the loss of a board that was rated by the Institute of Directors as among the top 25 percent in the country.