Hand-out season

These days there are many more people with their hands out. Except you won’t find them at traffic lights — they represent state-owned enterprises and they’re lining up before government for bail-outs.

With Finance Minister Pravin Gordhan projecting a tax revenue shortfall of between R50-billion and R60-billion that will lead to an increased budget deficit, it is still unclear whether and how government will finance its underperforming parastatals.

After Gordhan’s announcement in July economists said that the country was well placed to weather the worst of the storm, but they predicted that the budget deficit would rise to between 5% and 7%, higher than the 4% estimated in the February budget, Trevor Manuel’s last as finance minister.

As it stands, arms company Denel is seeking nearly R1.7-billion, the SABC R2-billion, Sentech R1.16-billion and South African Airways (SAA) up to R4-billion. Eskom reported a loss of R9.7-billion this week, but it appears it will not be asking for a bail-out from government.

The Pebble Bed Modular Reactor (PBMR) project also requires R31-billion for the development of its demonstration and pilot fuel plants, and the Airports Company South Africa (Acsa) is buckling under the debt it has incurred for its airports upgrade programme and may also look for government assistance if it doesn’t get the increased tariffs it has asked the regulator for.

The South African National Roads Agency, which has huge cash-flow issues, was recently given a R35-billion capital injection by government.

The underperforming parastatals were defended last week by Jeremy Cronin, the deputy transport minister, who said that the state-owned entities should not be judged by the same standards as private entities.

Chief economist at the Efficient Group, Dawie Roodt, said that government should rather give the parastatals guarantees to source the capital they require themselves. ‘That is the best way to do it,” said Roodt.

The sums of money parastatals are requesting may be significant, but in the greater scheme of things they add up to small change.

The biggest concern is the funding for electricity and related investments, which South Africa cannot afford. ‘We simply do not have sufficient funds to fund the capex requirements of electricity and related investments,” he said.

‘We have to spend less elsewhere and save more for electricity investment.” It was likely that if the parastals got the money from government, they would be back next year for more. ‘Their holes are not going to be filled up,” Roodt said.

When the Mail & Guardian asked the treasury what discussions were taking place about the parastatal funding requests, spokesperson Thoraya Pandy said the treasury did not routinely comment on budget requests.

‘Our task is to evaluate the requests and appraise Cabinet of the issues, the merits and demerits of the case and the risks or opportunities involved,” said Pandy. ‘The minister pronounces on the allocation of resources during the budget in February and any adjustments to the budget during the tabling of the medium-term budget in October.”

Eskom Following the electricity crisis of 2008, Eskom secured a loan from government of R60-billion, with R177-billion in government guarantees, to fund its capital expenditure plans and bring additional electricity capacity on stream.

It is still facing a large funding gap on a plan that will cost a total of R385-billion. But, critically, the utility has reported a loss of R9.7-billion for the financial year, raising the question of how it will sustain these losses, given the already substantial help it is receiving for its building programme.

Denel was the first parastatal to report its annual results — earlier this month it announced a R544-million loss. It is seeking close to R1.7-billion to replace R1.1-billion in government guarantees.

Chief executive Talib Sadik expects the company to be profitable only in 2011-12. Denel is in the middle of a turnaround process, having failed to post a profit for almost a decade.

When he announced the results, Sadik said that nine of its 11 businesses were back on track and only the missiles and aerostructures divisions still needed to turn the corner.

He said that Denel was struggling with the interest payments on its debt, which amounted to R80-million for the past financial year.

Last week the Airports Company South Africa reported a 44% drop in earnings, a combination of the large debt it has incurred to fund its airport upgrades programme and the recession’s effect on airline traffic.

Acsa has shelved the plan for a midfield terminal at OR Tambo International, cutting its planned capex expenditure for the next five years from R22-billion to R17-billion.

Last year Acsa spent R5.2-billion upgrading OR Tambo and Cape Town Internat ional airports ahead of the 2010 World Cup and has begun work on a new R6.8-billion airport at La Mercy, outside Durban.

Acsa has asked the regulator for a tariff increase, which it hopes will allow it to service its debt.

South African Airways is expected to report an operational profit of R1.2-billion before interest and tax.

But the airline is facing a R1-billion fuel-hedging loss, a R727-million provision for 15 Airbus A320 aircraft that are on order and R1-billion Voyager liability that will result in a massive net loss.

The end result will be a request for a government bail-out of anywhere between R1-billion and R4-billion.

The SABC’s financial woes have been well documented and it appears it owes money all over town.

When the interim board decided to settle with former chief executive Dali Mpofu, the department of communications had to fork out R4.4-million because the broadcaster didn’t have any money.

It has been reported that the SABC is looking for a R2-billion bail-out from government.

With the digital migration process under way — which will see South Africa’s television signal switched from analogue to digital — Sentech is demanding more funding.

Govern ment has committed just short of R1.18-billion to Sentech but will probably need to provide a further R1.16-billion.

Government also faces a major shortfall for its set-top box subsidy programme. A reported R400-million is on the table, but an estimated R2.45-billion is required.

In addition, only R20-million was allocated for the vast educational campaign that will be needed to inform consumers about the digital migration process.

Communications Minister Siphiwe Nyanda has admitted that he will have to lobby treasury for further funds.

The PBMR’s demonstration and pilot fuel plants have had their costs almost doubled to R31-billion.

Chief executive Jaco Kriek put this down to increased material costs and inflation. PBMR is hoping to raise the capital from the local market.

Public Enterprises Minister Barbara Hogan said recently that government remains committed to the PBMR project and that its funding was being assessed.

So far the PBMR project has received R9-billion, of which it has spent R8-billion. PBMR has about 920 staff and annual running costs of R1-billion.

Transnet, one of the country’s best-performing parastatals, reported a profit of R5-billion in June, down 23% from last year.

Acting chief executive Chris Wells said that next year Transnet would launch its international bonds, as it was determined to raise almost half of the R80-billion in capital it needs for its multibillion-rand projects.

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Lloyd Gedye
Lloyd Gedye
Lloyd Gedye is a freelance journalist and one of the founders of The Con.

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