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Still no tough love on state-owned enterprises from God...

Business Maverick

BUDGET2022

Still no tough love on state-owned enterprises from Godongwana, especially Eskom

From left: Eskom’s Lethabo coal-fired power station in Vereeniging. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | Finance Minister Enoch Godongwana. (Photo: Dwayne Senior / Bloomberg via Getty Images) | An SAA Airbus A320-200 passenger jet. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | South African banknotes. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

The government has made allocations to other state-owned enterprises including the power utility, SAA, Denel, and Sasria. But not all the allocations are new money. 

Finance Minister Enoch Godongwana is not yet ready to completely make good on his promise of tough love towards state-owned enterprises (SOEs) by starving them of more taxpayer-funded bailouts. 

Four SOEs — Eskom, Denel, SAA, and the South African Special Risk Insurance Association (Sasria) — stand in line to receive some form of financial support from the government during its 2022/23 fiscal year. Most of the financial support to SOEs is not new as it has been always provisioned for, but will be transferred in the coming months.

A few days after Godongwana was appointed in August 2021 by President Cyril Ramaphosa as the finance minister, the former said the era of continuous bailouts to struggling SOEs would soon come to an end. He said SOEs must be shown “tough love” and be able to stand on their own without government support.  

But in his first main budget, which was presented in Parliament on 23 February 2022, Godongwana came to the financial rescue of SOEs, especially Eskom. 

But Godongwana’s approach — unlike his predecessors — in saving SOEs is different this time: he is only prepared to save SOEs that are important for SA’s economy and only pay their historical debt. Godongwana is also not prepared to directly give SOEs money to fund their operations. 

Godongwana has come to Eskom’s rescue. 

Three years ago, the National Treasury had committed to transferring R23-billion a year to Eskom over ten years. In the past three years, transfers have been higher, as Treasury has “front-loaded” its commitment. In doing so, the Treasury has extended government guarantees to Eskom. Guarantees are commitments from the government to commercial banks that the former would pay the debt of SOEs if they default on debt payments. Put differently, SOEs would use these guarantees to borrow money.  

Eskom has a government guarantee facility of about R357-billion, of which the power utility has already drawn/used R281.6-billion by 31 March 2021. Godongwana has agreed for Eskom to draw a further R25-billion in government guarantees in 2022/23 to borrow more money from banks. Eskom might be awarded further financial support of about R21.9-billion in 2023/24. 

But Godongwana —  like his predecessor Tito Mboweni — has sidestepped the question of how Eskom’s debt pile will be restructured. The question has been sidestepped for about three years. 

Eskom has a debt of around R400-billion that it is unable to service using its own revenue generated from electricity sales. Most of this debt is guaranteed by the government, which will be on the hook for Eskom debt payments if it defaults on debt payments. 

The government has made allocations to other SOEs including SAA, Denel, and Sasria. 

Struggling state-owned airline SAA will receive R1.8-billion in 2022/23, funds that were always earmarked by the government for its business rescue process. In 2020, the government set aside R16.4-billion to fund SAA’s business rescue process, of which R14.6-billion has already been transferred to the airline. The R1.8-billion to SAA will go towards paying the airline’s historical debt, which is a condition imposed by a group of private-sector investors that plan to invest in the airline. The investors, which include Harith General Partners and Global Aviation, plan to buy a 51% stake in SAA from the government. 

State-owned arms manufacturer Denel will receive R3-billion from the government. Denel is facing a financial crisis so daunting that it cannot pay its debt and owes more than R500-million in outstanding salary payments to its workers.

Sasria is a state-owned insurance company that was at the forefront of paying businesses insurance claims arising from the July unrest across Gauteng and Kwazulu-Natal. Sasria has faced insurance claims worth R32-billion and cannot afford to independently pay them. So, it needs the government’s help. Sasria has been allocated R22-billion by the government. 

Despite offering substantial help to Eskom, Godongwana said he remained committed to showing SOEs “tough love”.  Godongwana said that part of “tough love” doesn’t necessarily mean that the government will stop funding SOEs but it involves not adopting a blanket approach to funding them. “It doesn’t mean that SOEs won’t be funded,” Godongwana told journalists before his budget speech in Parliament. 

“But tough conditions will remain. There is no blanket support for SOEs. Everyone [SOEs, in this case] will have to come to the queue and demonstrate that they are the good child,” he said. Put differently, Godongwana said SOEs must show demonstrable steps that they have their financial situation around before approaching the government with a begging bowl. DM/BM

 

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  • The first step in tough love is to rein in the overhead expenses like inflated salaries paid to Board members and other executives appointed through cadre deployment. They must earn their salaries, be accountable or be fired

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