The Road Accident Fund will be the first among a number of the state-owned entities that will be piloted to undergo a system overhaul to address growing financial distress. Picture: Dumisani Dube
The Road Accident Fund will be the first among a number of the state-owned entities that will be piloted to undergo a system overhaul to address growing financial distress. Picture: Dumisani Dube

Budget 2021: Treasury vows to review SOEs’ liabilities

By Siphelele Dludla Time of article published Feb 25, 2021

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PRETORIA - THE ROAD ACCIDENT Fund (RAF) will be the first among a number of the state-owned entities that will be piloted to undergo a system overhaul to address growing financial distress.

Finance Minister Tito Mboweni's Budget Review yesterday revealed that the government would this year table revised legislation to replace the RAF with the new system to address the entity's accumulated liability.

Mboweni committed the government to move with speed in re-evaluating the mandates of all financially distressed State-owned enterprises (SOEs), social security funds, and development finance institutions to mitigate the government's contingent liabilities.

This follows President Cyril Ramaphosa's announcement during his State of the Nation address two weeks ago that the government will review these institutions' mandate as part of a rationalisation process to ensure they were responsive to national development needs.

Mboweni said SOEs that weighed down the fiscus would need to expedite the implementation of reforms, which include facilitating private-sector participation, costing developmental mandates and streamlining operations to focus on core mandates.

Mboweni was eerily silent on SAA additional funding in spite of a request for R3.5 billion by business rescue practitioners to implement its business rescue plan.

“There is no allocation for SAA,” Mboweni said. “This needs to be interrogated before money is given to SAA.”

Mboweni said the financial performance of some state entities had deteriorated sharply last year as the Covid-19 and its associated lockdowns curtailed revenue growth in spite of many operational costs remaining inflexible.

This led to development finance institutions borrowing more than anticipated, borrowing R70.8bn compared with a planned R57.8bn

The Land Bank, for instance, found itself in financial distress due to inadequate internal controls and the government had to step in with a R3bn bailout last year.

The bank's total assets amounted to R46.2bn at the end of 2019/20, with liabilities of R43.7bn and a loss of R2.1bn suffered through sustained droughts, livestock and crop disease.

Mboweni said he will impose appropriate conditions on the equity support to put the Land Bank on a stable and sustainable development path as the government provided an additional R7bn to support the restructuring of the bank.

“This allocation will help to resolve the bank's current default and re-establish the development and transformation mandate,” he said. “This amount will not affect the expenditure ceiling but will be offset through an expenditure reprioritisation process.”

He said any support to state-owned companies and public entities will have to be done through budget reprioritisation as outlined in the 2020 medium-term budget. State-owned arms manufacturer Denel, Eskom and South African Airways remain reliant on the government support due to poor financial performance and governance problems.

Mboweni said Denel and the government were discussing how to implement its turnaround plan as declining revenues, and high expenses and debt-service costs, mean little cash is available for operations. Denel has been struggling to pay salaries every month for the past 18 months and recorded a loss of R2bn in 2019/20.

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