The government should finalise and implement key reforms urgently in the management of state-owned enterprises (SOE) to ensure policy certainty and empower them to deliver on their developmental mandates, an executive of the office of the auditor-general said on Wednesday.
The Shareholder Management Bill, in the offing for years, should be finalised, and criteria for funding SOEs should be clarified, A-G deputy business executive Fhumulani Rabonda said in a briefing of parliament’s public enterprises committee members on the audit outcomes of the department and SOEs.
“Slow progress” in implementing key reforms creates policy uncertainty among SOEs with some such as Denel struggling to deliver on their mandates, Rabonda said.
MPs were sceptical about public enterprises acting director-general Jacky Molisane’s undertaking that the Shareholder Management Bill will be tabled by the end of the financial year as similar undertakings were given in the past by the department and public enterprises minister Pravin Gordhan. The bill is intended to strengthen the government’s role as shareholder, regulator and policymaker.
The Treasury undertook in the 2022 Budget Review that it would publish a framework outlining the criteria for government funding of state-owned companies in the current fiscal year “to manage this significant area of risk”.
State-owned enterprises had to reduce their demands on limited public resources, develop and implement sustainable turnaround plans and identify appropriate funding plans, said the Treasury. It said the government would guide and support credible restructuring plans.
Rabonda said delays in finalising funding criteria diminishes the ability of SOEs to sustain themselves and make the right investment decisions. “Without certainty you are not going to go far with these SOEs,” he said. They need to know where their finances are coming from and this would reassure investors.
Equity partner
Focusing on the public enterprises department’s decision to sell a strategic equity stake in SAA to the Takatso consortium, Rabonda said there are no clear legislative provisions for the disposal of SOEs, SOE noncore assets or strategic equity partner transactions to ensure that the process and terms benefit the state.
“There is an urgent need to develop [a] clear regulatory framework for strategic equity partner transactions as government has plans to engage in more of these transactions.”
He said state-owned arms manufacturer Denel has not submitted annual financial statements for the past two years due to financial and operational challenges. It committed to submit its 2020/2021 statement by end-November.
“The entity is currently in contravention of the Public Finance Management Act and the Companies Act having failed to submit financial statements for auditing for two consecutive financial years,” said Rabonda.
“The department of public enterprises has reported that it is working with Denel to implement a long-term turnaround plan, which requires restructuring. However, it appears that there are no clear plans to address the immediate liquidity requirements of the entity,” he said.
Rabonda said the audit of Eskom has been delayed due to issues such as late submission of information and adjustments of misstatements identified during the audit.
Two instances of material irregularities related to contracts were identified in the Transnet audit. Disciplinary processes are under way.
Material adjustments
Rabonda said the department’s leadership “did not adequately exercise oversight responsibility over financial, performance reporting and compliance with applicable laws and regulations”.
Regarding the department and Transnet, the auditor-general found that “senior management did not prepare regular, accurate and complete financial and performance information which resulted in material adjustments to the financial statements and performance report”.
The department received an unqualified audit report with findings for 2021/2022 as it did for the previous year.
The Financial and Fiscal Commission’s macroeconomic and data specialist Siyanda Jonas said that the maturity of SOE debt presents a substantial risk to the fiscus.
SOE debt repayments will peak in 2025/2026 at R24bn, of which the government guarantees 17% (R4bn). In 2026/2027 SOE debt repayments will amount to R16bn, of which 55% will be guaranteed by the government.
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