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State-owned enterprises get financial support from Godongwana despite ‘tough love’ approach 

State-owned enterprises get financial support from Godongwana despite ‘tough love’ approach 
Transnet logo. (Photo: Gallo Images / Darren Stewart) | South African Airways aircraft at OR Tambo International Airport, Johannesburg. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | Eskom power lines. (Photo: EPA-EFE / Kim Ludbrook)

Struggling state-owned enterprises including Denel, the SA Post Office, Land Bank, Eskom, and South African Airways stand to receive financial support during the government’s 2023/24 fiscal year.

Finance Minister Enoch Godongwana has offered financial support to basket-case state-owned enterprises (SoEs) despite his commitment two years ago to be discerning about taxpayer-funded bailouts to such entities. 

Struggling SOEs including Denel, the SA Post Office, Land Bank, Eskom, and South African Airways stand to receive financial support from Godongwana during the government’s 2023/24 fiscal year. 

Two years ago, Godongwana pledged to show SOEs “tough love” in reference to no longer offering a blank cheque to such entities, some of which have habitually relied on taxpayer-funded bailouts for survival. Godongwana later clarified his stance, saying that bailouts would be considered on a case-by-case basis.

Some of the allocations to SOEs are new and others have been provisioned for and pencilled in the government’s previous budget. 

A new bailout includes one that will be offered to the Post Office, which stands to receive R2.4-billion. The Post Office is broken — operationally and financially. It has been recording financial losses for 16 consecutive years and owes the SA Revenue Services income and corporate tax payments. The Post Office also owes money to landlords at buildings that house its branches and has not made medical aid and pension fund contributions on behalf of its workers for several years.

The Post Office has, in previous budgets, asked Godongwana for financial assistance. But Godongwana has not entertained such requests. The National Treasury’s 2023 Budget review states that the bailout of the Post Office will help fund the SOE’s turnaround plan, which includes paying down debt and cutting as many as 6,000 jobs to save company costs. It is expected that the R2.4-billion to the Post Office will help fund its operations, including retrenchment packages for soon-to-be laid-off workers. 

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In another case of the government supporting an SOE, there will be further financial support to Eskom. The government plans to take over R254-billion of Eskom’s total debt worth R423-billion.

Read on Daily Maverick: Government comes to Eskom’s rescue by taking over R254bn of its debt

In early 2020, the Land Bank defaulted on debt repayments to lenders, triggering a financial crisis. The company was immediately forced to honour outstanding debt payments to lenders, but it couldn’t afford to do so. So, the government had to step in and rescue the Land Bank from collapse. But before awarding money to the Land Bank, it had to come up with a turnaround plan to remedy its debt default scenario. The Land Bank hasn’t concluded a turnaround plan, but the Treasury is ready to transfer R5-billion to it. 

There were also delays in the transfer of funds to state-owned arms manufacturer Denel, which was allocated R3.4-billion. But the funds were withheld until Denel finalised a plan to turn its financial and operational situation around.  

State-owned airline SAA will also receive an additional R1-billion, which was pencilled in the previous budget. This money is expected to fund SAA’s business rescue process and settle historical debt obligations so that private sector investors can be introduced into the airline’s shareholding structure. Private sector investors want all of SAA’s historical debt cleared before they invest in the airline. 

State-owned freight company Transnet will also receive an additional R2.9-billion to fund repairs to its infrastructure and locomotives that were damaged during the April 2022 floods in KwaZulu-Natal. 

Godongwana said some bailouts to SOEs could not have been avoided and were necessary, such as the repairs to Transnet’s operations. Godongwana said a strict criteria will still be applied when other SOEs apply for bailouts in the future. DM/BM


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