No holy cows as Mboweni says reconfigure fiscus-draining SOEs

2018-10-24 14:07 - Lameez Omarjee, Fin24
City Press

Reforming state-owned enterprises is one of government's priority areas over the next three years, according to Treasury's medium-term budget policy statement.

The mini budget, announced by Finance Minister Tito Mboweni in Parliament on Wednesday, indicates that finances at state-owned enterprises (SOEs) remain weak and pose a fiscal risk, along with weak economic growth which is affecting revenue collections and the financial position of provincial government and municipalities.

SOEs particularly have struggled to access credit due to weak balance sheets, poor corporate governance and liquidity challenges.

The entities will find it difficult to refinance maturing debt, investors require guarantees before they will provide financing, Treasury noted. "As a result, government's contingent liability exposure is likely to remain high," the policy statement read.

As at 2016/17, combined liabilities for national public entities and SOEs totaled R1.6trn. Just this year, government had to reprioritise R5bn for the recapitalisation of South African Airways and R2.9bn for the South African Post Office.

Treasury pointed out that SOEs with a poor financial position pose a fiscal risk and will "put major pressure" on the public finances.

Treasury warned that several entities with "acute" financial difficulties do not have sufficient cash to repay debt.  

Government guarantees

Government has set aside R670bn in guarantees for SOEs. By the end of June 2018, R334.2bn of guarantee facilities had been used.

Treasury also outlined the financial position of six SOEs:

Eskom – The power utility has a R350bn government guarantee, of which it has used R255bn. So far R35bn has been approved for specific funding instruments but has not yet been borrowed. Eskom's liquidity position has improved on the back of improved investor sentiment over the past year. By the end of August 2018, Eskom had secured 73% of its R72bn funding requirements for 2018/19, and 17% of its funding requirements for 2019/20 has been secured. But the power utility's weak financial position remains a risk.

SAA – The airline has a R19.1bn government guarantee, of which R14.5bn has been used. A total of R14.2bn debt is set to mature in March 2019. SAA is not generating sufficient cash to repay its total debt and will have to negotiate with lenders to refinance or extend maturity dates, Treasury said. Both SAA and SA Express will present turnaround strategies by the end of the year – both airlines will require additional funding for 2018/19. Mboweni said he and Public Enterprise Minister Pravin Gordhan are "working closely" to limit the fiscal cost of this.

Trans-Caledon Tunnel Authority – The authority has a government guarantee of R18.9bn. Its long-term sustainability depends on the financial health of the department of water and sanitation's Water Trading Account, Treasury said. However poor financial management by the department will threaten the ability of the TCTA to meet its commitments.

South African National Roads Agency – The agency has a government guarantee of R38.9bn. There is a risk this guarantee may be called because the agency is not generating sufficient cash from e-tolls. Government has allocated R5.8bn to SANRAL for 2018/19 to prevent this. At a press briefing ahead of the mini budget Mboweni told journalists that government wants SANRAL to be able to access funding from markets instead of being reliant on Treasury. This means the user-pay principle for toll roads must be adhered to.

Road Accident Fund – Despite the 30c/l increase in the RAF levy, the fund's liability is expected to grow from R206bn to R393bn by 2021/22. The RAF may require large increases to the fuel levy in the next three years to manage the short-term liability.

Mboweni told journalists government should be open-minded about state-owned enterprises and should possibly consider equity partners to help finance them and possibly close certain business activities.

Mboweni called for a reconfiguration of SOEs. Using SAA as an example, he said that the airline is still loss-making and "even more radical measures" need to be undertaken. "There should be no holy cows!"

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