South Africa has more than Eskom to worry about

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2023-03-14 at 17:15 #396778

Nat Quinn
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Duncan Pieterse, the head of asset and liability management at the National Treasury, says that extensive “recapitalisation initiatives” for state-owned companies through loan guarantees from the government are becoming an ever-growing fiscal risk.

Despite making up 55% of recapitalisation funding at R331.2 billion between 2014 and 2023, Eskom is part of a sum of companies owned by the state that are in dire financial straits and need more money from the government to keep going.

During a presentation to the standing committee on public accounts this Tuesday (14 March), Pieterse said that over the last decade, there had been a significant decline in the performance of major state-owned companies as operational costs have increased, net profits have fallen, and debt levels have become increasingly unsustainable.

He said that state-owned companies have been facing inadequate financial policies and a lack of adequate oversight and accountability since 2012.

“Customers have also complained about increasingly poor levels of service delivery. Compensation costs, in general, have far outpaced the growth of these businesses and have become a key factor in declining net profit or losses.

“The multiple bailouts of Eskom, South African Airways, South African Broadcast Corporation, the Post Office and others have become a fiscal burden. And the high debt levels have increased fiscal risk to unacceptable levels and crowded out important social and other expenditure.”

Billions have been routinely spent on businesses – that are being run into the ground – last another year through guarantee loans.

Governments may make guarantee loans, in terms of the Consitution, to public institutions – only if the guarantee complies with the conditions of the legislation.

The guarantee is essentially an obligation to cover the beneficiaries in their financial obligations, such as repayment or interest payments. These guarantees were initially issued to allow public entities to borrow on the strength of their balance sheets and be used in exceptional cases.

Exceptional cases are, however, becoming more common, and the frequency and value of guarantees in South Africa have remained high.

According to the National Treasury, governments’ exposure to contingent liabilities emanating from public entities is expected to reach R396.1 billion this year.

The fiscal authority added that the state and quality of the exposure to risk have decreased.

The table below shows the value of the guarantees provided and the amount that has been given to embattled state companies:

The table below shows the five biggest recapitalisation projects in South Africa so far:

How much is it all costing

Eskom

Prior to this year, Eskom has received billions of recapitalisation, and it has not slowed down.

Due to the company’s financial position, a special appropriation bill was urgently tabled late last year that allocated a further R230 billion in support.

The government has provided: R158.6 billion, R56 billion, R31.7 billion and R21.9 billion for 2019/20, 2020/21, 2021/22 and 2022/23, respectively.

In the latest budget, the finance minister Enoch Godongwana proposed a two-component debt-relief arrangement costing a further R256 billion.

South African Airways (SAA)

In 2019, when the company entered business rescue, R22.8 billion was provided for recapitalisation. An additional R16.4 billion was then allocated over the 2020 period, said the Treasury.

In 2020/21 a further R10.5 billion was made available to the company for the business rescue plan. During his latest budget speech, Godognwaa announced R1 billion for the settlement of outstanding business rescue process obligations.

SAA will have received a total of R50.7 billion in direct government funding from 2007 to 2022, of which R48.4 billion have been received in the past 10 years.

Airports Company South Africa (ACSA)

The pandemic resulted in the company facing a 92% decline in customers and was, therefore, allocated R2.3 billion to mitigate against the impact.

Transnet

The latest Special Appropriate Act (2022) provided Transnet with R2.9 billion to accelerate locomotive repairs and maintenance. Another R2.9 billion was then given to the national logistics and freight company to restore infrastructure from the KwaZulu-Natal floods, said the Treasury.

The South African National Roads Agency SOC Ltd (Sanral)

Last year, the country’s road agency was allocated R23.7 billion to settle the ever-increasing debt and debt-related obligations under the Gauteng Freeway Improvement Program, which included e-tolls.

South African Broadcasting Corporation (SABC)

The national broadcasting business, over the past few years, has been facing severe liquidity constraints and was allocated R3.2 billion through a contingency reserve in 2019/20.

South African Post Office (SAPO)

After the cessation of its subsidy in 2013, the post office required R7.9 billion to recapitalise and cover debt.

Despite the money being provided, the outdated business model of the company resulted in the government approving a recapitalisation of R2.4 billion.

Denel

Denel was experiencing liquidity and solvency challenges, and in 2019/20 and 2020/21, it was granted R1.8 billion and R576 million, respectively.

“An additional R3.4 billion has been allocated in 2022/23 to assist the entity with the completion of its turnaround plan.”

To meet the payment of maturing bonds and associated interest payments, the company was further provided roughly R3.3 billion, said the Treasury.

South African Special Risk Insurance Association (Sasria)

Following the July riots the company was provided R22 billion in government recapitalisation guarantees.

Land Bank

Between 2013 and 2023, the Land Bank received bailouts to the value of R13.6 billion to address liquidity shortfalls and boost its deteriorating capital position, said the Treasury.

The Development Bank of South Africa

Between 2014 and 2016, the DBSA received a total injection of R7.9 billion to support its turnaround strategy and restructure.

source:South Africa has more than Eskom to worry about (businesstech.co.za)
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Duncan Pieterse, the head of asset and liability management at the National Treasury, says that extensive “recapitalisation initiatives” for state-owned companies through loan guarantees from the government are becoming an ever-growing fiscal risk.

Despite making up 55% of recapitalisation funding at R331.2 billion between 2014 and 2023, Eskom is part of a sum of companies owned by the state that are in dire financial straits and need more money from the government to keep going.

He said that state-owned companies have been facing inadequate financial policies and a lack of adequate oversight and accountability since 2012.

“Customers have also complained about increasingly poor levels of service delivery. Compensation costs, in general, have far outpaced the growth of these businesses and have become a key factor in declining net profit or losses.

“The multiple bailouts of Eskom, South African Airways, South African Broadcast Corporation, the Post Office and others have become a fiscal burden. And the high debt levels have increased fiscal risk to unacceptable levels and crowded out important social and other expenditure.”

Billions have been routinely spent on businesses – that are being run into the ground – last another year through guarantee loans.

Governments may make guarantee loans, in terms of the Consitution, to public institutions – only if the guarantee complies with the conditions of the legislation.

The guarantee is essentially an obligation to cover the beneficiaries in their financial obligations, such as repayment or interest payments. These guarantees were initially issued to allow public entities to borrow on the strength of their balance sheets and be used in exceptional cases.

Exceptional cases are, however, becoming more common, and the frequency and value of guarantees in South Africa have remained high.

According to the National Treasury, governments’ exposure to contingent liabilities emanating from public entities is expected to reach R396.1 billion this year.

The fiscal authority added that the state and quality of the exposure to risk have decreased.

The table below shows the value of the guarantees provided and the amount that has been given to embattled state companies:

The table below shows the five biggest recapitalisation projects in South Africa so far:

How much is it all costing

Eskom

Prior to this year, Eskom has received billions of recapitalisation, and it has not slowed down.

Due to the company’s financial position, a special appropriation bill was urgently tabled late last year that allocated a further R230 billion in support.

The government has provided: R158.6 billion, R56 billion, R31.7 billion and R21.9 billion for 2019/20, 2020/21, 2021/22 and 2022/23, respectively.

In the latest budget, the finance minister Enoch Godongwana proposed a two-component debt-relief arrangement costing a further R256 billion.

South African Airways (SAA)

In 2019, when the company entered business rescue, R22.8 billion was provided for recapitalisation. An additional R16.4 billion was then allocated over the 2020 period, said the Treasury.

In 2020/21 a further R10.5 billion was made available to the company for the business rescue plan. During his latest budget speech, Godognwaa announced R1 billion for the settlement of outstanding business rescue process obligations.

SAA will have received a total of R50.7 billion in direct government funding from 2007 to 2022, of which R48.4 billion have been received in the past 10 years.

Airports Company South Africa (ACSA)

The pandemic resulted in the company facing a 92% decline in customers and was, therefore, allocated R2.3 billion to mitigate against the impact.

Transnet

The latest Special Appropriate Act (2022) provided Transnet with R2.9 billion to accelerate locomotive repairs and maintenance. Another R2.9 billion was then given to the national logistics and freight company to restore infrastructure from the KwaZulu-Natal floods, said the Treasury.

The South African National Roads Agency SOC Ltd (Sanral)

Last year, the country’s road agency was allocated R23.7 billion to settle the ever-increasing debt and debt-related obligations under the Gauteng Freeway Improvement Program, which included e-tolls.

South African Broadcasting Corporation (SABC)

The national broadcasting business, over the past few years, has been facing severe liquidity constraints and was allocated R3.2 billion through a contingency reserve in 2019/20.

South African Post Office (SAPO)

After the cessation of its subsidy in 2013, the post office required R7.9 billion to recapitalise and cover debt.

Despite the money being provided, the outdated business model of the company resulted in the government approving a recapitalisation of R2.4 billion.

Denel

Denel was experiencing liquidity and solvency challenges, and in 2019/20 and 2020/21, it was granted R1.8 billion and R576 million, respectively.

“An additional R3.4 billion has been allocated in 2022/23 to assist the entity with the completion of its turnaround plan.”

To meet the payment of maturing bonds and associated interest payments, the company was further provided roughly R3.3 billion, said the Treasury.

South African Special Risk Insurance Association (Sasria)

Following the July riots the company was provided R22 billion in government recapitalisation guarantees.

Land Bank

Between 2013 and 2023, the Land Bank received bailouts to the value of R13.6 billion to address liquidity shortfalls and boost its deteriorating capital position, said the Treasury.

The Development Bank of South Africa

Between 2014 and 2016, the DBSA received a total injection of R7.9 billion to support its turnaround strategy and restructure.