Public enterprises minister Pravin Gordhan has ruled out offloading Denel, the broke state-owned arms manufacturer that is on the brink of collapse and is struggling to pay salaries.
Denel, which is one of the many parastatals struggling to recover from state capture, has recorded huge losses in recent years and owes staff R650m in outstanding salaries and suppliers R900m.
This has led to calls from opposition parties and other stakeholders for the state to privatise the entity.
In a written reply to questions by the EFF published in parliament at the weekend, Gordhan said Denel was a strategic national asset that was interlinked with sovereign security, suggesting it should always be under some form of state control for security reasons.
“The government is therefore seized with the primary responsibility to preserve the critical defence industrial capabilities that reside in Denel,” Gordhan said.
He said that while the ongoing financial challenges required, among others, a strategic review and repositioning of the company, “selling a stake at a Denel level is not among the current considerations”.
“However, options under considerations include strategic equity partnerships in carefully selected business units and strategic partnership, such as joint ventures at capability and product levels,” the minister said.
The crises at Denel and other entities have put the government under pressure to show its intent on the restructuring of SOEs and reducing the financial burden on the fiscus.
Ratings agencies have cited SOEs, including Eskom, as the major risk to the sustainability of the country’s finances.
The power utility, which supplies virtually all of SA’s power, is hamstrung by a staggering debt of more than R400bn, amid maintenance issues at its ageing power plants leading to load-shedding, which threatens economic recovery.
The Treasury also sees state-owned companies as a major risk to the fiscal framework and has already introduced a strategic equity partner into SAA, enabled private generation of electricity and is planning private participation in the freight rail sector to increase competition, boost efficiency and reliability and reduce costs for customers.
Finance minister Enoch Godongwana introduced the “tough love” policy regarding SOEs — including no further bailouts — at a media briefing ahead of the medium-term budget policy statement (MTBPS) late in 2021.
Denel was hoping to get a huge bailout in the budget tabled by Godongwana in parliament in February, but that did not materialise.
Denel reported a loss of R2bn in 2019/2020, when it generated only R2.7bn in revenue. The government provided recapitalisations of R1.8bn in 2019/2020 and R576m in 2020/2021, and extended a R5.9bn guaranteed debt facility. In 2021 the government gave Denel R2.9bn to cover debt.
Gordhan said the implementation of Denel’s turnaround strategy, which includes selling some of its assets, had been slow due to liquidity challenges.
“Several strategic initiatives relating to the disposal of noncore assets are being developed and phased in as far as possible to expedite funding for Denel’s recovery as an interim measure, until funding allows for full implementation of the new model. The department is working with Denel to revise and firm up the business case, which will form the basis for seeking shareholder support.
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