Parastatals bailed out again — with promises of a fix

SAA, the mining company Alexkor and the arms manufacturer Denel, all owned by the state, continue to haemorrhage money, with no solutions in sight.

The treasury singled them out in its Budget Review document.

"Reasons for the poor performance of these three companies included policy uncertainty, costs associated with noncommercial activities, operational inefficiencies, management instability and lack of adequate co-ordination between boards and the shareholder," it said. "In the case of SAA, fundamental changes in the global airline industry also played a role."

"Over time, the equity of entities that persistently lose money is gradually eroded, which eventually requires that they be recapitalised. Over the next year, the government will work with SAA, SAX [South African Express], Denel, the SABC and the South African Post Office to develop sustainable, long-term strategies, which may include some form of restructuring."

The government's continuous bailing out of SAA has been in the headlines of late, with Comair taking the state to court over it. Comair has argued that SAA has received more than R11-billion from taxpayers over the years and it is questioning the government's latest R5-billion guarantee, given to SAA in October last year. It argues that this is anticompetitive and that SAA is operating in a "noncommercial manner", which has resulted in a number of commercial airlines shutting their doors.

Loss of R1.3-billion
The airline graced news headlines for all the wrong reasons last year with an operating loss of R1.3-billion reported for the past financial year, followed by the R5-billion bailout from the government in October. SAA also had to secure R550-million to cover its operations during the festive season.

Denel received R1.1-billion between 2009 and 2013, with R415-million transferred to it to cover indemnity claims against the company and R700-million for recapitalisation.

Alexkor received R515-million between 2009 and 2013, with R165-million going towards setting up a joint venture with the Richtersveld community, which was part of a court settlement between the two groups.

But the joint venture does not even have an approved business plan and is still assessing new mining ventures, both of which are stated as objectives for the current financial year in the public enterprises budget vote document.

The treasury says those parastatals facing persistent financial difficulties will be "urgently" reviewed to establish sustainability but, after years of promises to fix them and with very few results, South Africans have a right to be cynical about it.

According to the Budget Review, state-owned entities are planning to spend R397-billion on infrastructure over the next three years. It says that 43% of the funding required for developing infrastructure by parastatals will be sourced from debt markets, with the remainder coming from internally generated cash.

"State-owned companies are benefiting from concessional funding opportunities presented by multilateral financing institutions, such as the African Development Bank, Agence Française de Développement and Kreditanstalt für Wiederaufbau. Borrowing by state-owned companies is projected to decline from 2.1% of GDP [gross domestic product] in 2012-2013 to 1.1% of GDP by 2015-2016," the Budget Review states.

Higher cash flows support
"The financing of their capital infrastructure programmes will be supported by higher cash flows, limiting the need for increased debt issuance.

"Eskom and Transnet remain the largest contributors to the borrowing requirement," it adds. They account for 87% of capital expenditure by parastatals.

"This will pay for the ongoing building of power generation plants and new transmission lines, investment in rail, ports and pipelines, large new water transfer schemes and various airport upgrades."

Sentech and the SABC will be getting large amounts from the state to help pay for digital terrestrial television (DTT) migration.

"R801.9-million over the medium term has been allocated for the broadcasting digital migration project," according to the public enterprises budget vote.

"Of this, R202.9-million was allocated to the SABC for the digital library and a digital play-out centre.

"Sentech is allocated R605.1-million over the medium term, which includes an additional R277-million in 2013-2014 for expediting the roll-out of the digital terrestrial television infrastructure and R6-billion to cater for ICT [information communications technology] infrastructure for the 2014 African Nations Championship."

R171-million of Sentech's allocation is for DTT infrastructure and R106-million is allocated for the dual illumination period, when broadcasters have to run both analogue and digital television signals, incurring additional costs.

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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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