The Treasury, which along with the department of public enterprises has committed the government to “mobilise funding” for the restart of SAA, failed to clarify on Thursday whether this meant it would provide the funding itself should the “mobilisation” prove unsuccessful.
The SAA issue is an important one for SA’s credibility in the bond market, among the investment community and with citizens because a commitment to provide the funding — now projected to be R10.1bn — was not included in the supplementary budget tabled by finance minister Tito Mboweni on June 24.
Mboweni has committed to stabilising government finances, cutting expenditure and slowing the growth of the debt burden over the next three years.
These commitments are also contained in a letter of intent, which will be sent to the IMF as the basis of an agreement for a $4.2bn (R70bn) Covid-19 loan, which SA requires to fund its historically massive budget deficit.
Questions posed to the Treasury were not answered by late on Thursday evening.
The commitment to “mobilise funding” is contained in a letter from public enterprises minister Pravin Gordhan and Mboweni to the SAA business rescue practitioners, Les Matuson and Siviwe Dongwana. The commitment to funding was among the conditions required for the business rescue to be a success. If the rescue fails then SAA will be liquidated.
The exact text of the letter, signed by both ministers says: “I recognise and acknowledge the funding requirements as set out in the business rescue plan and accordingly commit the government of the Republic of SA (herein represented by the minister of public enterprises and concurred to by the minister of finance) to mobilise funding for the short-, medium- and long-term requirements, to create a viable and sustainable new SA national airline.”
The letter, which Business Day has seen, has not been provided to the public. But a statement from the department of public enterprises said that it “welcomes the commitment by National Treasury that the government will support and source funding for a business rescue plan for SAA”.
This has been widely interpreted by the media and political parties to be a commitment that the government will provide the funding necessary.
Opposition political parties including the DA, IFP and UDM all expressed outrage at the news. The DA said that should Mboweni attempt to make an appropriation for SAA using his “emergency” powers in section 16 of the Public Finance Management Act, it was poised to approach the courts to block it. The use of section 16 is the only legal mechanism that Mboweni has at his disposal to appropriate funds outside of the budget or the adjustment budget.
A lawyer’s letter sent to Mboweni on Thursday warned that funding for SAA does not constitute an emergency.
“There is no emergency. SAA’s financial decline has taken place over several years.
“It was placed in business rescue late last year. Nothing about SAA’s decade-long decline or its current status in business rescue justifies this extraordinary short-circuiting of the usual appropriations process,” the lawyer’s letter says.
If the conditions precedent for the plan are not met by July 22 then the business rescue practitioners are obliged to call another creditors’ meeting to evaluate the plan. Among the conditions are “confirmation of government’s support and commitment to providing the requisite funding”.
However, the letter of commitment provided by Mboweni and Gordhan avoids the commitment of “providing” funding.
Mboweni has previously stated that the Treasury would not provide further funding to SAA. It is already committed to providing R16.4bn over the next three years to repay debt that the company accumulated.
On Thursday, political risk and bond market analysts faced urgent questions from investors inquiring why Mboweni had caved in on SAA, after refusing to make an allocation in the supplementary budget.
The Treasury has chosen to remain silent on the matter, referring inquiries to the department of public enterprises.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.