Government’s financial guarantees to the country’s beleaguered parastatals have more than doubled in the past financial year and are expected to come close to doubling again by 2013.
According to the Budget Review, government guarantees to parastatals increased from R63-billion in 2008/09 to R138-billion in 2009/10 and were expected to reach more than R240-billion by 2012/13.
South Africa’s underperforming and inefficient state-owned entities have hit the headlines in the past few years for all the wrong reasons, constantly having to be bailed out with taxpayers’ money.
Government’s new policy has put an end to these bailouts; however, it is still happy to underwrite the parastatals’ attempts to borrow the money privately to fund their infrastructure investment programmes and turnaround strategies.
South Africa’s struggling parastatals are not just a drain on public finances, but also have serious ramifications for the economy.
In the Budget Review, treasury says that independent assessments it commissioned to look at competition and regulation in network industries highlighted a number of inefficiencies in key sectors, such as electricity, telecommunications and freight transport, that impose additional costs on the economy.
This is significant, as these sectors are dominated by embattled state-owned entities such as Eskom, Transnet, South African Airways, Sentech and Telkom (in which government is a majority shareholder).
The Budget Review calls for increased access to these market segments by private investors, stating that government has set a target of 30% for private-sector electricity supply, but does not provide a date by which this should be achieved.
It stresses that a performance culture needs to be developed at parastatals, “where people are held accountable for their actions”.
“We will enhance oversight and governance of state-owned entities to improve their financial performance and developmental impact,” it states. “It remains government policy that state-owned entities should largely borrow on the strength of their balance sheet to reduce government’s gross contingent liabilities, promote efficiency, ensure competitive standards of delivery and discourage wasteful investment.”
However, there is concern that this means government will have to keep its own debt ratios in check, or the guarantees it has provided to the parastatals will be of little use to them in securing the required funding. Public debt is expected to rise from 23% of GDP in 2008/09 to about 40% in 2013.
“To fund infrastructure investment, state-owned enterprises have significantly increased their borrowings,” says the Budget Review. “While some of their capital spending requirements may be financed by higher tariffs, these entities will continue to borrow to sustain the expansion of the country’s economic infrastructure.”
It continues: “For this to be made possible, government has to moderate its claim on the capital markets by reducing borrowings.
“If national government does not moderate its borrowing requirement, public enterprises may find it difficult to raise the debt necessary to sustain their large infrastructure programmes.”
The Budget Review further states that between 2009 and 2014, the estimated capital expenditure by state-owned entities amounts to just short of R700-billion. Eskom was top of the pile for government guarantees in the 2009/10 financial year, with a further guarantee of R56-billion to add to the R176-billion in guarantees that the government approved in February 2009.
The South African National Roads Agency, the Development Bank of South Africa (DBSA) and the Land Bank were next on the list, with R12,3-billion, R5,2-billion and R2,5-billion respectively. The DBSA received a further guarantee of R15,2-billion for the 2010/11 financial year; however, this is an interim measure as the government plans to finance DBSA out of its own coffers following a legislative amendment.
Denel had its two current guarantees of R88-0million and R420-million extended to March 2011 and was issued with a guarantee of a further R550-million, which will be released in three tranches.
The SABC received a R1-billion guarantee to support the R1-billion loan it secured from Nedbank in December 2009.
To date, Eskom has secured a $2,5-billion (R19,1-billion) loan from the African Developmental Bank, Transnet has secured a 35-billion yen (R3-billion) loan from the Japanese Bank for International Cooperation and the European Investment Bank has provided €480-million (R5-billion) in funding for various state-owned entities.
In March, the World Bank will consider a loan application by Eskom for $3,75-billion (R28,6-billion), along with $250-million (R1,9-billion) from the World Bank’s Clean Technology Fund. Further financing of $1,25-billion (R9,5-billion) is expected to be available from the World Bank in a subsequent phase.