State guarantees of R466bn unlikely ‘to explode’
Treasury director-general Lungisa Fuzile warns burden of guarantees will slow drawdowns for state-owned enterprises
Government guarantees to state-owned enterprises will not "explode" anytime soon, but they are a concern to credit ratings agencies, says outgoing director-general of the Treasury Lungisa Fuzile.
Government guarantees to state-owned enterprises and entities amounted to R466bn at the time the 2017-18 budget was tabled in Parliament in February. The cause for concern was that the state will have to make good on these guarantees in the event of a default by their beneficiaries. This would place additional pressure on an already constrained fiscus.
Fuzile was answering a question by ANC MP Pinky Kekana after a presentation to the finance committee on the Treasury’s annual performance plan in what was probably his last appearance in Parliament before his departure.
The largest guarantee was for Eskom to build the Medupe and Kusile power plants. Of the R350bn guaranteed, R210bn had been drawn down so far. Drawdowns had accelerated recently as the build programme had picked up steam. Because Eskom had not received the tariff hikes it had asked for, it had to resort to borrowing, he said.
The drawdowns would have been even greater had Eskom completed the construction on schedule in 2017-18.
"If the system ensures that the guarantees to Eskom never get called, then the system is fine by and large," Fuzile said, though he stressed that the businesses that received state guarantees needed to be run well.
The next biggest guarantee was for the South African National Road Agency, which according to the budget review amounted to R34bn. There did not appear to be any problems with the roads agency.
Responding to a question by DA MP Alf Lees, Fuzile said the guarantee to South African Airways was about R19bn, of which R16.7bn had been drawn down so far. It would, however, take some time for SAA to be in a sound financial position.
He told MPs this would require the injection of substantial equity by the government. This would reduce the need for further guarantees.
The Treasury was working on a recapitalisation of SAA, which would happen in 2017. The decision to make a substantial cash injection had been made and the question being tackled by the Treasury now was how much this should be.
SAA’s capital structure was inappropriate as it was too heavily skewed towards debt, Fuzile said. The airline recently appointed a new chief financial officer, Phumeza Nhantsi, who was in an acting position and had won the confidence of lenders. Fuzile said she was doing good work.
Fuzile believed Finance Minister Malusi Gigaba had been "quite effective" in conveying the message that the fiscal objectives of the government had not changed.
He said Gigaba had been very clear in telling investors that nothing would change in the government’s fiscal stance, unless a slowdown in economic growth required this.
Tuesday’s was probably Fuzile’s last appearance in Parliament before he leaves the Treasury. He has asked to be released from his contract after his former bosses, Pravin Gordhan and Mcebisi Jonas, were dismissed from President Jacob Zuma’s cabinet in March.