MEDIUM-TERM BUDGET POLICY STATEMENT
MTBPS: Godongwana repeats tough love message to SOEs about bailout requests
No new money was allocated to Transnet, Eskom, Denel, the Land Bank and the SA National Roads Agency, other than an update to money transfers and support measures announced in previous budgets.
Finance Minister Enoch Godongwana has not allocated any new financial support to state-owned enterprises (SOEs), which routinely approach him with a begging bowl, in the Medium-Term Budget Policy Statement (MTBPS) review.
In a press briefing with journalists on Wednesday on the MTBPS, Godongwana said he was taking a new approach to bailout requests from SOEs — one that involves their having to first show a commitment to reforming their operations and implementing plans to turn their fortunes around.
“This time around, we are not going to give any bailout — whether a guarantee or cash — until we have interrogated turnaround plans, whether the plans have been internalised and adopted,” Godongwana said before he presented the MTBPS in Parliament.
Godongwana said although the government had “not closed the door” to more bailout requests from SOEs, he said there would be strict conditions attached to such requests in future. “We are realistic that at some point, we have to find solutions to the SOE problems.”
His comments follow the latest request from the board of state-owned transport group, Transnet, for more money to implement its turnaround plan.
The Transnet board has come up with a turnaround plan that requires funding of more than R100-billion from the National Treasury over the next two years.
The financial support package includes a request for R47-billion in an equity injection or a loan that can be converted to equity if the SOE demonstrates progress in turning its operations around.
The second part of the support package includes the Treasury taking over a portion of Transnet’s total debt of R130-billion. A minimum of R61-billion of Transnet’s debt would be taken over – similar to the debt relief measure offered to Eskom.
Read more in Daily Maverick: Transnet’s turnaround plan is premised on securing a R100bn ‘capital injection’ from government
Without the government’s financial assistance, the Transnet board said its turnaround plan would not succeed.
Godongwana said the request for more money by Transnet’s board came in “a couple of days ago” after the MTBPS was finalised, and this is why no funding for the SOE was allocated. But Godongwana said discussions with Transnet were ongoing, inferring that the SOE might be allocated money in the February 2024 Budget.
Godongwana said any financial support that was offered to Transnet should benefit not only the SOE but also the broader logistics industry.
Transnet’s rail operations are a crucial cog in the economy as they are responsible for ferrying most of the iron ore and coal that SA produces to countries around the world. When Transnet isn’t operating properly, SA business does not operate and the country’s exports are held hostage.
This dysfunction at Transnet can be seen in its rail volumes, which have been declining continuously from a peak of more than 200 million tonnes a year in 2019, because of mismanagement of the rail network, cable theft, and vandalism. The dysfunction is also evident at its port operations, which are ranked poorly around the world in terms of efficiency and loading times.
The only government financial support that Transnet has is a guarantee of R3.5-billion, which has not been adjusted in the MTBPS. Transnet could use this guarantee to borrow more money from lenders. A guarantee is an agreement that the government or the fiscus would pay Transnet debt if it defaults on payments.
However, lenders are wary of providing Transnet with more money because its debt repayment profile has deteriorated as it nearly defaulted on debt repayments in 2022.
Read more in Daily Maverick: After the Bell: Beyond poor performance and astounding debt, Transnet has another often-overlooked crisis
Treasury’s new director-general Duncan Pieterse supported Godongwana’s views, saying that future bailouts to SOEs would come with “strict conditions”. No new money was allocated to other SOEs including Eskom, Denel, the Land Bank and the SA National Roads Agency either, other than an update to transfers that were announced in previous budgets. DM