Finance Minister Enoch Godongwana is starting to make good on his promise to show “tough love” to beleaguered state-owned enterprises (SOEs) as the 2024 Budget does not make new provisions for taxpayer-funded bailouts to such entities. 

It was largely expected that Godongwana would allocate new financial support from the government for Transnet and the Post Office because he has argued that these SOEs are too big to fail. However, the SOEs were not allocated new money in the Budget.

Over the past three years, Godongwana has promised to refuse taxpayer-funded bailouts to SOEs because they are a drain on public finances and have worsened the government’s debt crisis. However, he has repeatedly reneged on this promise, awarding bailouts to Eskom, South African Airways. 

The Post Office’s need for financial support is more immediate since it is in business rescue and needs a cash injection of R3.8-billion. This money is also needed to fund its business rescue process and pay creditors, who are owed more than R3-billion. 

National Treasury’s 2024 Budget review documents only highlight the R2.4-billion that was allocated in 2022 to fund the Post Office’s business rescue process. This money is yet to be transferred to the SOE because it is required to meet conditions first, and is set to fund its business rescue process. A business rescue plan for the Post Office, which proposes (among other things) cutting 6,000 jobs and closing 600 branches, has already been approved by the SOE’s creditors.

The R2.4-billion provisioned by the government is substantially less than what the business rescue practitioners, Anoosh Rooplal and Juanito Damons, have asked for. The pair have said that for the business rescue plan to be fully implemented, the Post Office will need a R3.8-billion bailout from the government.  

The R2.4-billion the government has allocated creates a shortfall of R1.4-billion. 

Transnet 

No new money was allocated to Transnet. The state-owned ports and freight rail operator will have to rely on the R47-billion guarantee that the government allocated to it in December 2023. 

This guarantee was to assist with maturing debt and the implementation of a recovery plan. 

A guarantee is not an immediate cash injection or bailout. Guarantees are given by the Treasury to SOEs to help them raise new debt with banks and other funders or settle existing debt obligations, especially when they soon come up for repayment. SOEs would then use the guarantees to secure new debt or roll over immediate repayments to a later date. If SOEs fail to pay back debt when it’s due (or default), then the government or taxpayers would be on the hook for payments. 

Transnet has been granted approval to use only R14-billion of the guarantee between December 2023 and March 2024 to pay off maturing debt. This guarantee will be used by Transnet to settle debt that is due soon for repayment. With a total debt of R135-billion, the entity also needs to pay debt worth R40-billion over the next three years. 

Like the SA Post Office, Transnet will also face a funding shortfall.

In November 2023, the Transnet board unveiled a turnaround plan that requires financial assistance of more than R100-billion from Treasury, which consists of a R47-billion equity injection and the government taking over R61-billion of the SOE’s debt – similar to the debt-relief measure offered to Eskom. 

However, Treasury’s 2024 Budget review was silent on further support for Transnet beyond the government guarantee package it received last year. 

Read more in Daily Maverick: Budget: Live stream, updates and commentary

In a briefing with journalists on Wednesday, 21 February, Godongwana said Transnet will first have to show progress in reforming its rail and port operations before any new money could be given to the SOE. 

Other SOEs, including Eskom and arms manufacturer Denel, which were previously allocated funding by Treasury, are starting to receive the funding support.  

Denel was allocated R3.4-billion in 2022 to fund the implementation of its turnaround plan. Treasury said that to date, Denel has drawn down R2.2-billion of the support package to “settle statutory obligations and legacy debt obligations and to fund working capital requirements”. The remaining R1.2-billion will only be accessible once Denel makes progress on its operational and financial situation.

In the 2022 Budget, Eskom was awarded a financial package worth R254-billion, distributed in tranches over three years. This would go towards reducing its smothering debt levels, estimated at more than R400-billion. 

Of the R254-billion, R44-billion has already been transferred to the utility. DM