GHALEB CACHALIA: Post-Covid-19 scenario should involve SAA and Alexkor’s liquidation
Regardless of whether one agrees with the concept of a developmental state, SOEs would be key to any developmental agenda, and SA’s have failed
In a recent interview, public enterprises minister Pravin Gordhan said all state-owned entities (SOEs) must be self-sustaining, “save to the extent that a specific developmental mandate may be given to an SOE, which could be reimbursed either through cross-subsidisation or on the understanding that no dividends are payable to the state but are instead used for developmental purposes”.
Regardless of whether one agrees with the dubious concept of a developmental state, which is characterised by state intervention as well as extensive regulation and planning, SOEs would clearly be key to any developmental agenda. Yet in SA, SOEs are beset by poor governance, weak management, government interference and inevitable corruption. They have, almost without exception, relied on bailouts from the Treasury and many are bankrupt. So much for SOEs and the developmental state.
At the most recent parliamentary portfolio committee meeting, Gordhan focused on three entities — SAA, Eskom and Transnet. Presumably Transnet was brought under the spotlight because unlike the other two entities it might provide some diversionary cover for the minister, since it posted an increase in profit of almost 25% for the year ended March 31 2019, largely attributed by management to cost containment measures. The group also reported a 1.6% rise in annual revenue, but irregular expenditure increased from R8bn to R49bn in the same period.
Newly appointed CEO Portia Derby advised that revenues will be adversely affected by lockdowns worldwide due to Covid-19, and this will have consequences for its loan covenants. The entity, the committee was told, has mapped out three scenarios following the Covid-19 crisis. In the more optimistic scenario, Transnet expects to have revenue reduced substantially, by R8.96bn.
Transnet's more realistic scenario, in the case of an extended soft lockdown, would see revenue reduced by R12.25bn. No mention was made of Transnet seeking private-sector investment, as is believed to be the case, nor whether Transnet should continue to operate as it does, preventing competition that could lower the cost of logistics and transport in SA.
It is hardly surprising that state-owned arms maker Denel was not the subject of enquiry at the meeting, nor state-owned diamond mining company Alexkor, which delivers less than 1% of SA’s total diamond production and has run out of money.
Denel, which received a R2bn government bailout in 2019, has told its staff it cannot pay their April pensions, taxes and unemployment insurance fund (UIF) contributions due to cash flow problems. Already in August 2018, SA National Defence Force chief Gen Solly Shoke told DefenceWeb he was “deeply concerned” about the financial situation at Denel as its predicament affected negatively on the delivery of equipment needed by the SA military, including the Badger infantry combat vehicle.
Even the injection of R576m promised in the 2020 budget will not alleviate Denel’s parlous position. Since its establishment in 1992 Denel has argued it is a “strategic national asset that adds great value to defence and security sectors as well as technological development”. Despite finance minister Tito Mboweni’s wishful utterances that “support is allocated with conditions that emphasise the need for Denel to speedily implement its turnaround plan”, the simple fact is that Denel is, to all intents and purposes, bankrupt.
Now we are told Gordhan is busy with an “alternative” plan to rescue SAA, which has ostensibly been developed with the help of trade unions and a business consultancy that has previously worked with the airline and is at loggerheads with the government-appointed business rescue practitioners (BRPs). Despite legal requirements to present plans and annual financial statements, neither has been forthcoming and the BRPs have in effect been silenced by Gordhan. The airline is patently bankrupt and any attempt to turn SAA into “a national asset which is internationally competitive, viable, sustainable and profitable” is simply a costly pipe dream.
To add insult to injury, Eskom’s income shrunk by about R2.5bn in April as energy demand plummeted due to the national lockdown. Essential maintenance has also suffered, necessitating a shift from “philosophy maintenance” to “opportunity maintenance”, the exact details of which are unclear. While CEO Andre de Ruyter says short term maintenance efforts have created additional buffer capacity of 2,000MW, the major issues involving shoddy and faulty construction and damage caused by breakneck running over many years have not been addressed. And then there’s the small matter of Eskom’s debt.
While boards have been appointed for Eskom’s transmission and generation divisions, it is still working on the allocation of its R450bn debt to each of these divisions. Debt will be apportioned, but the reality is that the overwhelming bulk of Eskom’s business is electricity generation, and that’s where the problems remain — debt, plant, load-shedding and more. Lucrative rent-seeking contracts are still in place and remain shrouded in secrecy.
Eskom needs to be broken up and sold, and the proceeds used to retire debt. The markets need to be let loose, allowing the various entities to partner with credible operators that are committed to purchasing electricity from whichever suppliers can offer the lowest price.
The time has surely come to plan for a post-Covid-19 scenario that liquidates the likes of SAA and Alexkor and sells Denel, while pursuing the active privatisation of the remaining sizeable SOEs, such as Transnet and Eskom, that fall under the department of public enterprises. If the rationale for government ownership is market failure and the government is able to provide the goods at an optimal level and price, there may be a reason for pursuing the SOE option.
But when the government fails, as it clearly has in this area, it is time for it to step aside. The developmental state concept is simply pie in the sky, even if you agree with heavy-handed statism.
• Cachalia is DA state enterprises spokesperson
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