President Cyril Ramaphosa responds to the Debate on the State of the Nation Address. Picture: ESA ALEXANDER
President Cyril Ramaphosa responds to the Debate on the State of the Nation Address. Picture: ESA ALEXANDER

As embattled state-owned enterprises (SOEs) are on the verge of financial collapse, requiring significant bailouts from the state, President Cyril Ramaphosa has emphatically ruled out privatising any of them. 

Many observers have called for the privatisation of some SOEs to reduce the financial burden on the state and resolve efficiencies. 

Finance minister Tito Mboweni previously suggested that SAA, the loss making state-owned airline, should be closed down as it is “unlikely that you are going to find any private sector equity partner who will come join this asset”.

In his reply to the state of the nation address debate on Wednesday, Ramaphosa said: “We disagree with the view that the most effective and efficient way to provide services to our people is through the private sector.”

Many of SA’s parastatals remain technically insolvent and on the brink of collapse. Ratings agencies have cited SOEs, including Eskom and SAA, among the major risks to the sustainability of the nation’s finances.  

Eskom, which supplies virtually all of SA’s power, is the biggest risk. It has crippling debt in the region of R440bn, which it is struggling to service from the revenue it generates. It is also unable to repay the R45bn of debt that falls due in 2019 or to raise new funding from financial markets.

The power utility was forced to implement stage four load-shedding in March as it could not meet demand.  It has sufficient cash to meet its obligations until October.

In his address last week, Ramaphosa said Eskom would receive a larger portion of the R230bn support promised in February’s budget sooner, in order to alleviate its financial crisis.

This week, Denel, the state-owned arms manufacturer, said it would struggle to pay June salaries in full amid a cash flow crisis. However, public enterprises minister Pravin Gordhan announced on Tuesday that a lender had come to Denel’s assistance at the 11th hour and full salaries will now be paid.

In his reply in parliament on Wednesday, Ramaphosa said SOEs have a critical role to play — in tandem with the private sector — in driving economic growth and transformation. He said the government would support companies like SAA and Denel as they seek to manage their dire financial positions and work to implement sustainable turnaround strategies.

“In our recent engagement with the chief executives of some of the country’s largest state-owned companies, we identified the key challenges they faced and the impediments towards the effective implementation of their respective mandates,” said Ramaphosa. “We have agreed that we will work together through the presidential SOE council to address all the issues they raised.”

Ramaphosa said that every single day public entities provide water, electricity, waste removal services, road maintenance and myriad other essentials to South Africans.

“To cite just one example: last year, the Post Office took over the payment of social grants. Before taking on this responsibility, in April 2018, only 31,000 social grant beneficiaries were paid through the Post Office.” Last month, 7.8-million beneficiaries were paid through the Post Office, representing just over 70% of all beneficiaries, the president said.

He said the successful takeover of the distribution of grants by the Post Office is a clear demonstration that government institutions “do have the capacity and capability to effectively implement projects of this magnitude”.

Referring to Eskom, Ramaphosa said the secure supply of electricity is fundamental to SA’s economic recovery.

“The measures that we announced in February to end load-shedding and place Eskom on a sustainable financial and operational path have, as minister Gordhan outlined, seen improvements,” Ramaphosa said.

He said the government was closely engaged with the situation at Eskom, assisting the entity with the implementation of its nine-point plan, putting in place a “world-class” executive team, strengthening the board and setting out in detail a comprehensive roadmap for the power utility.

“We have done much to address governance challenges at several other state-owned enterprises and have been decisive in tackling corruption and state capture,” said Ramaphosa.

“As we address challenges at specific SOEs, we are also working towards a new SOE landscape in which state-owned companies have the expertise, leadership and appropriate financial models to fulfil their respective mandates.”

phakathib@businesslive.co.za