CAPE TOWN/JOHANNESBURG – The government is planning to place struggling state-owned entities (SOEs) under curatorship, with Finance Minister Tito Mboweni yesterday calling for tough conversations on the viability of underperforming entities.
“Isn’t it about time the country asks the question: do we still need these enterprises? If we do, can we manage them better? If we don’t need them, what should we do?" he asked during the Budget speech.
Mboweni comments come as SAA, SABC, Denel, Eskom and others request financial state support just to continue operating.
Mboweni told journalists on the sidelines of the Budget speech that the government would install chief reconfiguration officers at SOEs that had requested funding.
He said he was prepared to host a summit to discuss the future of the country's SOEs.
“Let us have the conversation on where to place scarce resources. Let us have a summit to discuss where to go with our SOEs,” he said.
The request for cash injections has seen the government moving to revise the contingency reserve for 2019/20 to respond to requests for support.
Entities such as the Road Accident Fund have continued to bleed cash, with an accumulated deficit expected to deteriorate at an average annual rate of 18.5 percent over the medium term to R402 billion in 2021/22.
Eskom reported a loss of R2.3bn in 2017/18, mainly as a result of the increase in net finance costs, lower revenue and high operational costs.
Denel recorded a net loss of R1.8bn, resulting in negative operating cash flows of R717m, compared with a positive R376m the previous year.
Denel’s gearing ratio increased from 122 percent to 361 percent. SAA incurred net losses of R1.5bn in 2015/16 and R5.6bn in 2016/17.
The airline is not generating sufficient cash to repay its maturing debt or cover its working capital requirements.
The government conceded that given the poor financial condition of the SOEs, a substantial share of the debt may need to be refinanced.
The 2019 Budget Review also painted a bleak picture, saying that debt due to seven of the country’s largest SOEs totalled R630bn in the next 23 years, with the government guaranteeing 54 percent of the total debt.
It said that over the medium term R155bn in debt falls due, of which the government guarantees R61bn.
“In the event that the entities are unable to refinance debt, the government may be called upon to honour guarantees, with major consequences for the public finances,” the review said, adding that increased credit risk had contributed to the high cost of funding for state-owned companies.
“Interest rates payable on short- to medium-term debt range from 8.4 percent to 9.8 percent, even where state guarantees are in place.”