SOEs: Taking a tough line on state spending
Failure to meet a single debt payment when it becomes due triggers a settlement of all debt owed by SOEs
New allocations to water infrastructure provider the Trans-Caledon Tunnel Authority (TCTA) and SAA have increased the government’s debt guarantees to state-owned entities (SOEs) by R13bn over the next three years.
This takes to R483bn its exposure to guarantees on the outstanding debt of 12 SOEs in the financial year.
What this means is that the government has to stump up R483bn, should any of the major SOEs default on their debts. A cross-default clause on the major utilities means that failure to meet a debt payment when it becomes due by a single institution automatically triggers a settlement of all debt owed by the other SOEs.
However, even though companies such as SAA and Denel have on numerous occasions failed to meet payment obligations when they are due, the government has so far succeeded in keeping capital providers from demanding immediate settlement.
To curtail demands for new funding, finance minister Tito Mboweni diverted about R6bn from other budget items. The Land Bank came to the party, settling about R1bn of its debt and reducing government exposure.
If you want money from the Treasury, then expect our [chief restructuring officer] at your doorTito Mboweni
Mboweni approved a new R18bn guarantee to the TCTA, which operates the Lesotho Highlands Water Project (LHWP) and other water provision infrastructure, taking the utility’s total guarantee to R43bn over the medium term, from R25.7bn in the 2018 financial year.
"Government and the TCTA concluded the guarantee framework agreement for the Vaal River System, which incorporates the LHWP and the acid mine drainage project," says the Budget Review. The LHWP, through tunnels and artificial waterways leading to the Vaal River, supplies most of the water used in the factories in the industrial heartland of Gauteng.
While Mboweni kept the guarantee to SAA unchanged at R19.1bn, the government’s exposure has grown to R17.3bn as the airline has taken on more debt, or refinanced existing debt. This week the airline received a new R3.5bn loan package from a consortium of banks.
The company has been technically bankrupt for the better part of the decade, and has been kept airborne by emergency loans from the private sector, on the back of government guarantees.
SAA has said it needs a further R21bn equity injection over the next three years to complete its turnaround and be sustainable.
As part of its attempts to return to sustainability, SAA announced this week it would break itself up into three entities.
After receiving a R5bn bailout from the government last year, together with agreement by a consortium of banks to roll over about R9bn of debt that had fallen due, SAA was compelled to appoint a chief restructuring officer to guide its return to stability.
Mboweni said he will now extend this model to all SOEs that require the government’s financial assistance.
"If you want money from the Treasury, then expect our [chief restructuring officer] at your door. My advice [to SOEs] is to avoid the Treasury," said Mboweni. "That is life. You can’t have your cake and eat it."
He said the government could not keep giving away taxpayers’ money without there being positive change.
Over the past four years, there have been growing requests for funding from SOEs crippled by operational losses, many stemming from rampant corruption originating from government officials.
Arms manufacturer Denel has received emergency loans to pay salaries since December. The SABC and fuel producer PetroSA have also been bankrupt for years, and continue to operate on the back of emergency loans backed by the government.
Asked whether the two entities would receive any allocation to fund operations, Mboweni said the Treasury was not in the business of doing that. "The least said about PetroSA, the better," he said. And the SABC, he said, was in talks with the Treasury about assistance of about R6.7bn.
Mboweni also had harsh words for his comrades in the ANC, who insist on funding unsustainable entities. "We have to ask ourselves whether we need this many SOEs. Do we need these SOEs?"
There is a large faction within the ANC and its trade union partners that is adamant the state will own and operate all the major entities. It’s something Mboweni likens to the outdated communist principles espoused by the Soviet Union, the biggest supporter of the liberation movement during apartheid.
"There’s a tendency in the ANC to get emotionally attached to the Soviet Union — this, long after the Soviet Union collapsed," he said.
"If a business unit does not work, you have to shut it down."