Leaner times for state enterprises

The government has cut back severely on funds allocated to state-owned entities, which in the past have placed a massive drain on the fiscus, mainly because of operational inefficiencies and poor corporate governance.

This was acknowledged in the treasury’s Estimates of National Expenditure released with the budget this week.

“A number of state-owned enterprises are suffering from operational inefficiencies, which are negatively impacting the economy,” according to the publication.

“A key challenge for the department is to play a catalytic role in improving efficiencies through positively influencing the boards’ execution of their oversight and operational management functions in relation to the enterprises.”

In the Budget Review 2011 the treasury says that state-owned entities need to borrow money on the strength of their balance sheets to remain sustainable. The treasury lays out its structure for public enterprise borrowing—42% of funds should come from internally generated resources, 28% from borrowing in the domestic market and 25% from borrowing in the international market.

This leaves 5% of the funding at the doorstep of the government.

After years of government funding, parastatals such as state arms company Denel, state mining company Alexkor, Broadband Infraco and SAA did not receive any funding in the budget allocations.

Parastatals get short shrift
The government did issue some new guarantees in the past financial year—Eskom received an additional guarantee of R174-billion and an existing guarantee of R1,9-billion for Denel was extended by a year.

The increase in Eskom’s guarantee was made in October last year and raises the total guarantee by the government to R350-billion.
This led to a cancellation of an Eskom credit watch, which has allowed Eskom to borrow with a mix of secured and unsecured debt instruments.

Transnet will still receive the R4,5-billion allocated to it between 2010-2011 and 2012-2013 for the construction of its national multiproducts pipeline, but it has not received any additional funding.

State signal distributor Sentech will receive R279-million in the next financial year, but this money is allocated to pay for South Africa’s migration from analogue television to digital television. Sentech will receive R622-million in total for digital migration over the medium term.

The Estimates of National Expenditure says that the Pebble Bed Modular Reactor Company will receive R40-million for decommissioning and dismantling costs in the 2011-2012 financial year, but this is mere pocket change compared with the R6-billion it received in the past four financial years.

The Nuclear Energy Corporation of South Africa has been allocated R586-million in the current financial year and will receive R1,7-billion over the medium term. But the treasury has cut its funding by R103,7-million over the medium term.

According to the publication, the treasury expects this funding to decrease as the Nuclear Energy Corporation of South Africa starts to generate its own revenue.

Broadband Infraco will receive no further funds from the fiscus—it received R347,1-million in the past two financial years.

Alexkor, which received R367,8-million in the past four financial years, will not get more funding.

Denel did not receive any additional funding after getting almost R852-million over the previous four financial years. SAA and South African Express, which received R2,3-billion and R140-million respectively over the past four financial years, also received nothing more.

Belt-tightening expected of parastatals
Between 2010-2011 and 2014-2015, the government expects spending by state-owned entities to amount to a projected R623,6-billion, which is down 10,9% from the previously forecast figure of R699,6-billion.

Of all the parastatals Eskom will spend the largest amount, accounting for almost 68% of the total spend with R421,6-billion. Transnet is next in line with R93,2-billion, equating to 14,9% of the total spend.

The Central Energy Fund will spend R34,9-billion, the Trans-Caledon Tunnel Authority R26,5-billion, the South African National Roads Agency R16-billion and the Airports Company South Africa

The treasury forecasts that, of the R623,6-billion required for public enterprise spending between 2010-2011 and 2014-2015, R310,7-billion will be secured through domestic loans and R188,7-billion through foreign loans.

Lloyd Gedye

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