The government says it will remain firm on its stance to withhold further funding for financially distressed state-owned enterprises as it moves to reduce dependency on SA’s limited public resources.
Finance minister Enoch Godongwana on Wednesday said there will be no blanket approach to providing bailouts to these entities.
This, he said, was in line with his “tough love” stance on SOEs, which have in recent years knocked on the government’s door for bailouts after running out of funds to service debt and for their operations.
The decline of SOEs has been flagged by investors, who have expressed unwillingness to extend capital to entities without government guarantees. Many SOEs are at risk of defaulting on their debt without the guarantees.
Apart from the R25bn government guarantee facility to power utility Eskom, this year’s budget, which was tabled before parliament by Godongwana on Wednesday, does not pencil in any further bailouts for public sector institutions.
Eskom will receive a further R88bn to pay off its debt until 2025/26. Eskom’s turnaround, including lightening its debt burden and restructuring into three separate units, will continue to be supported by the government, Godongwana said. But the support depends on Eskom taking steps to contain costs, including the sale of its assets and enhancing the reliability of electricity supply.
SAA, which is being finalised to be sold to a strategic equity partner, will receive R1.8bn and state-owned arms manufacturer Denel has been allocated R3bn. Provision was made for these funds in November’s medium term budget policy statement and they are not new allocations.
“It doesn’t mean we will not support [state owned enterprises]. What it does say is we will support provided that certain provisions are met,” Godongwana said during a pre-budget media briefing.
The momentum on implementing reforms at SOEs by bringing in private participation has increased in recent years. This includes opening up the energy market to allow for private electricity generation and the development of partnerships with private players to operate and manage SA’s rails and ports.
However, over the past two years, the momentum waned as several SOEs shifted their focus to mitigating risks associated with the pandemic and lockdowns which have reduced their operational income.
This resulted in public sector institutions such as the Land Bank, which provides financing to the agricultural sector, and state-owned arms manufacturer Denel missing their capital investment and loan disbursement targets.
Godongwana indicatedthat the Land Bank will likely receive additional funding because the Treasury is “still negotiating with [the bank’s] lenders.”
The Land Bank and other enterprises, would have to demonstrate that they are “serious about cost containment,” before receiving funding because, over time, the entities should be self-sustaining and be moved away from state dependence, Godongwana said.
The criteria for state funding is expected to be published by the government in the upcoming financial year. Some of the criteria, includes implementing sustainable turnaround plans that align with their mandates, incorporating long‐term structural considerations in their sectors and identifying appropriate funding models, Treasury said in the Budget Review.
“Their future will be informed by the value they create and whether they can be run as sustainable entities without bailouts from the fiscus,” Godongwana said.
“Some state owned enterprises will be retained, while others will be rationalised or consolidated.”
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