Cape Town - When President Jacob Zuma broke his silence on his reasons for firing his finance minister, he also acknowledged why the move sowed such panic in the markets.
“Government also remains committed to provide support to state-owned companies in a fiscally sustainable manner, including South African Airways,” he said on Friday night.
That was to counter reports that Nhlanhla Nene’s fatal misdemeanour had been to cross swords with the chairwoman of the SAA board, Dudu Myeni, who also chairs the Jacob Zuma Foundation and is a close friend of the president.
Nene had written to the SAA board warning it not to proceed with plans championed by Myeni to restructure a deal with Airbus.
Myeni wanted to renegotiate a deal, with the aim of replacing the purchase of 10 A320s with a lease of five A330s, to allow a South African company to buy the aircraft on the national carrier’s behalf.
This would have triggered a requirement to cough up outstanding pre-delivery payments of $40m (R635m). Nene said this would have negative financial implications for SAA and, potentially, the fiscus.
SAA has accumulated more than R14bn in government loan guarantees and earlier this year sought a further R5bn from Nene.
Should it default on the R8.5bn in debt it has built up on the back of the collateral provided by the state, the Treasury would have no choice but to take over the repayments.
Such an eventuality – coming on the heels of negative sovereign credit rating assessments, delivered with the warning that contingent liabilities relating to a number of troubled state-owned enterprises constituted a risk to the fiscal outlook – could drag the country down to junk status, raising borrowing costs for everyone.
The main reason Nene’s axing was so damaging was that it suggested he had become the latest in a series of ministers to have paid the price for standing up to Myeni, giving the impression that the state-owned enterprise (SOE) tail was wagging the fiscal dog, with the potential to drag the economy to ruin.
Zuma tried to dispel this notion.
“No state-owned entity will dictate to government how it should be assisted,” he said.
The explanation he gave for redeploying Nene was scarcely credible. In effect he asked the nation to believe the finance minister – in the midst of an economic maelstrom – was needed more urgently as a bank manager for the local branch of the Brics bank.
Eskom, as the biggest state-owned enterprise, features even higher among the concerns. Unlike SAA, it has shown signs of being on the path to recovery under its new board and chief executive, Brian Molefe. It finally brought the first unit of its Medupi power plant to commercial operation in August, three years late, and has largely avoided load shedding since.
But its challenges remain daunting. A R5bn contract to replace steam generators at Koeberg has been set aside by the Supreme Court of Appeal on the grounds that it was awarded unlawfully.
The long-running Hitachi Power Africa-Chancellor House saga is back in the news after Hitachi parted with $19m to settle charges that it made irregular payments to the ANC investment company to land a R38.5bn deal for the construction of boilers for the new power stations.
Costs for Medupi and Kusile have soared and repayments on the loans taken out for their construction have fallen due, but Eskom is receiving revenue from only one unit out of 12.
That is a major contributor to its financial woes, which compelled the Treasury to grant it a R23bn bailout and the conversion of a R60bn subordinated loan to equity – in effect writing it off – earlier this year.
The proposed programme to build nuclear power stations is apparently so dear to Zuma’s heart that it was among the considerations leading to the downfall of Nene, who failed to show sufficient enthusiasm.
This was another of the risks to the fiscal outlook cited by the ratings agencies.
The Passenger Rail Agency of SA (Prasa) has not asked for more cash yet, but the financial implications of its disastrous R5bn procurement of Spanish-made locomotives that don’t fit the rail network have yet to be realised.
Prasa is seeking to have the contract set aside, but to succeed will have to prove there was corruption.
Its new board chairman, Popo Molefe, told Parliament’s standing committee on public accounts last month the bid process had been rigged to favour the local partner, which should not have qualified.
The SA Post Office, a problem on a smaller scale, is equally vexing. Crippling labour disputes have left it deep in the red. It was placed under administration last year and has a new board and chief executive. It owes suppliers more than R245m. It had a net loss of R285m in the first quarter of the year, and is losing about R100m a month. It says it needs capital to unlock revenue streams to make it profitable.
The Special Investigating Unit had investigated allegations of irregular procurement and recruitment by Post Office board members and alleged fraud and corruption relating to its head office lease. An application is to be made to the high court to set aside the lease.
Irregular deals, poor financial management, impunity of culprits, and business challenges have contributed to the R469.4bn provided in government loan guarantees to state-owned enterprises, of which R225.9bn has been used, according to latest Treasury figures.
This represents a huge risk to Zuma’s vow that state-owned enterprises will be supported in a “fiscally sustainable manner”. His words will have to be backed up by action over an extended period.
Political Bureau
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