/ 30 October 2009

SA’s problem children

South Africa’s beleaguered parastatals have been clamouring for Finance Minister Pravin Gordhan’s attention, begging for handouts to ease their strained coffers.

Although the billion-dollar bailouts some were demanding have not materialised, Gordhan still forked out more than R3.5-billion to South Africa’s state-owned entities in his mediumterm budget this week. Meanwhile, all public entities are to be placed under the spotlight to see whether they fulfil their mandates with the public money they receive from the treasury.

Habitual problem children South African Airways (SAA), Denel and the Land Bank were at the front of the queue.

Gordhan’s mini-budget stated that the department of public enterprises would receive additional funding to convert a guaranteed loan of R1.56-billion — awarded to SAA in former finance minister Trevor Manuel’s last budget — into equity to reduce debt.

Quite how government takes further equity in a 100% state-owned entity is not clear, but department of public enterprises spokesperson Ayanda Shezi said: ‘Essentially, with a loan you pay interest, with an equity injection you don’t.”

Sounds pretty much like a bailout for a company that was crowing about the R398-million profit they made this year, which was mostly thanks to the renegotiation of the Airbus contract Denel was unhappy about the cost implications of delays in the Airbus Military A400M manufacturing relationship, which government roped it into Denel chief executive Talib Sadik recently told Parliament that the delays in the manufacture of the A400M aircraft could end up costing the company between R600-million and R1-billion.

But Denel was also on the receiving end: R192-million was allocated to it for ‘the indemnity provided by government for the A400M contracts”. The treasury did stipulate that this was to pay a penalty for failing to meet performance targets.

However, the Department of Public Enterprises claimed this week that the national treasury had erroneously classified the payment as an indemnity.

”Denel had expected to be in a position where the production phase of the contract had commenced in 2008,” said the DPE statement.

”However as a result of the delays in the development of the aircraft, the design phase has been extended. Denel has met its targets in terms of its contracts and Airbus is reputedly comfortable with its performance.”

The Land Bank, which had been placed under the watchful eye of the national treasury, has been allocated a further R1-billion for its recapitalisation. The SABC has been making noises about its need for a R2-billion bailout, but this was not forthcoming. Gordhan did, however, allocate R200-million to the institution to assist its ‘immediate liquidity requirements and to allow it to continue to trade”.

Telkom still has the government as its largest shareholder and Gordhan forked out a further R370-million for the roll-out of 2010 stadium information and communication infrastructure.

The Gautrain project received a further R144-million for ‘inflation and foreign exchange adjustments” included in the contracts, whereas the Coega Industrial Development Zone (IDZ) received a further R156-million.

The East London IDZ received R68-million and the Industrial Development Corporation was allocated R34-million. The South African Roads Agency had a transfer payment of R13.1-million rolled over.

Airbus A400M arms deal
South Africa’s deal to purchase eight Airbus Military A400M aircraft, which it agreed on in 2005, looks set to have substantial financial implications for the state and its arms manufacturer Denel.

Armscor chief executive Sipho Thomo recently said the prices of the aircraft had ballooned from R17-billion to R47-billion. But the project also had a manufacturing component that would see Denel acting as a subcontractor, designing the wing-to-fuselage fairing (that is, streamlining), top shells and ribs, swords and spares over a 15-year period.

The value of the manufacturing deal to Denel was reported to be about R1.7-billion. Denel chief executive Talib Sadik said the delays in the manufacture of the A400M aircraft could cost between R600-million and R1-billion.

There is pressure for the deal to be scrapped, but Sadik said that regardless of whether this happened, Denel would still have to abide by its manufacturing contracts.

Public entities under scrutiny
More than 130 public entities will come under scrutiny to check whether they fulfil their mandates.

Finance Minister Pravin Gordhan said government will look at whether these entities are needed and if any can be amalgamated.

Gordhan told a press briefing that some of these entities employ only a handful of people but have
all the frills of large entities, such as boards and support staff, which may be unnecessary. Often board members of entities are paid for each meeting attended, which is money Gordhan believes can be utilised better.

The International Marketing Council is one of the entities that will be scrutinised to see whether the spending on this body, which markets South Africa overseas, is justified.

Other entities include the Government Printing Works, the South African Revenue Service, the Commission for Conciliation, Mediation and Arbitration and all the sectoral education and training authorities.

In the housing sector seven agencies support the work of the department of human settlement, and research bodies that fall under the department of science and technology will also be assessed. — Mandy Rossouw

Graphic: The great state begging bowl