Minister of Public Enterprises Pravin Gordhan. (Yunus Mohamed/Photo24)
State-owned enterprises (SOEs) pose a "very serious risk" to the fiscus, Finance Minister Tito Mboweni said.
The minister tabled the National Budget in Parliament on Wednesday, where he highlighted that the deteriorating financial position of several large SOEs pose a risk to the SA economy and public finances.
"Funding requests for SAA, SABC, Denel, Eskom and other financially challenged state-owned enterprises have increased, with several requesting state support just to continue operating.
"Isn't it about time the country asks the question: 'Do we still need these enterprises?'" Mboweni asked the National Assembly.
He said that, when it comes to government's approach to SOEs, there are no holy cows. Government is currently reviewing the framework for SOE support.
So far government has revised contingency reserves to R13bn for the 2019/20 fiscal year, to respond to possible requests for financial support by companies.
"Financial support will be budget neutral as far as possible," Mboweni assured.
Over the past year government guarantee use increased by R51.5bn. Government dished out R50bn to power utility Eskom, R1bn to arms manufacturer Denel and R6.2bn to national carrier South African Airways (SAA).
"We must tighten the guarantee rules," Mboweni said. He proposed that, if SOEs require guarantees for operational purposes, the there should be a condition for them to appoint a chief reconfiguration officer, who will undertake a full operational and financial review.
The goal is for the officer to be the "eyes and ears" of government in SOEs and to make sure that they are good stewards of the funding they have been allocated, Mboweni told journalists at a briefing ahead of delivering the budget speech.
"We want to look after every rand and cent provided," he said. "There is no free lunch here."
During his address to Parliament, Mboweni said Cabinet is considering a proposal to end the issuing of guarantees for operational purposes.
"Expiration dates on guarantees will also be strictly enforced," Mboweni said. He added that strategic equity partners for SOEs will also be found, where possible.
In the 2019 Budget Review, Treasury unpacks the risk SOEs pose to the fiscus.
Several SOEs are financing operations with debt and some are "perilously close" to a default unless they receive some form of recapitalisation, the review states.
Several entities cannot meet obligations to their employees, public and debt holders because of weak revenue growth, high compensation costs to employees due to over-staffing and debt servicing costs which have accumulated over years and are now weighing down profitability.
Over the next 23 years, a total of R630bn debt will fall due. Government guarantees 54% of this debt or R340.2bn. Over the medium term (the next three years) R155bn will fall due. Of this government guarantees R61bn.
Treasury highlighted that there is a risk government will be called upon to refinance the debt, as some SOEs are not in a position to do so themselves. This will have "major consequences" for public finances, Treasury said in the budget review.