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2019: A grim year for state-owned entities

Dec 29 2019 07:41
Sibongile Khumalo

As the country battled low growth and record unemployment this year, a number of key state-owned enterprises - which are supposed to drive economic activity - faced financial ruin, putting further strain on the already ailing economy. 

Many of South Africa’s major public entities have been implicated in state capture and corruption, including allegations of the looting of billions of rands through the irregular awarding of contracts, as heard in evidence presented at the Zondo Commission into state capture.

The government has continued to guarantee the debt of cash-strapped public entities, which has included billions in bailouts to help them ward off insolvency, and, at times, even help them pay salaries. 

Ratings agencies and international lending institutions, meanwhile, have repeatedly flagged the draining effect of SOEs on state coffers, calling for urgent reforms to reduce their dependency on government. 

Below are some of the entities which sank deeper into the financial abyss in 2019:

Eskom 

The power utility is undoubtedly the biggest threat to South Africa, with its inability to keep the lights on hitting the economy. The latest bout of load shedding in December may have resulted in a recession in the second half of 2019. 

Furthermore, its debt burden of R450bn continues to weigh on SA's fiscal position. Much of this debt is due to  the escalating cost for the construction of its two mega power stations, Medupi and Kusile. The cost for Medupi now stands at an estimated R208bn (from the original budgeted amount of under R70bn in 2007), while Kusile is now expected to ring up R239bn, from R80bn.

In May, CEO Phakamani Hadebe announced his resignation amidst 'unimaginable demands' impacting his health, and the board appointed chairperson Jabu Mabuza to act as interim leader. It was only in late November that Nampak boss Andre de Ruyter was announced as the utility's new head. 

However, the most significant manoeuvre to save Eskom this year was the groundbreaking announcement by President Cyril Ramaphosa in February in his State of the Nation address that the utility would be split into separate generation, transmission and distribution businesses. All would still fall under a state-run holding company.  

The announcement was met with mixed reactions. Some unions lambasted the plan as an attempt to privatise a key government utility, while some analysts argued it did not go far enough. 

South African Airways (SAA) 

After years of surviving on government bailouts and guarantees, SAA in November became the first public entity to be put into business rescue

The business rescue was preceded by a series of financial and operational challenges which pushed the flag carrier to the brink of collapse, including an unprecedented eight-day strike in November by ground staff and cabin crew members.

The strike grounded much of the airline, causing an estimated revenue loss of R52m a day.

These losses added pressure to the airline's already weak financial position,  and may have served to hasten the government’s business rescue announcements on December 5, some two weeks after the end of the strike. The airline was also, at the time, facing a separate business rescue application by trade union Solidarity. 

SAA financial woes are rooted in claims of financial mismanagement, leadership instability, allegations of corruption and wider pressures facing the global airline market. 

The flag carrier, which was established 85 years ago, has incurred over R28bn in cumulative losses over the past 13 years. Nine turnaround strategies in little over a decade have done nothing to stop these losses, nor has it curbed its long-term debt of R21.7bn. 

Its latest long-term turnaround strategy, originally crafted in 2013, was meant to get the airline to break even in 2020/21. The plan, according to former CEO Vuyani Jarana, who quit in June, was not yet implemented when he left. It would have required R21.7bn to implement. In his scathing resignation letter, Jarana gave a glimpse into the financial crisis faced by the airline, and he added that there was a lack of support by the board for the turnaround strategy. To underline its financial shambles, the airline has been unable to submit its financial statement for 2017/18 and 2018/19.

Denel

The state arms manufacturer has been stumbling from one financial crisis to another this year, amid allegations of corruption in the allocation of key contracts.

National Treasury, at the end of August, granted the company a R1.8bn lifeline as it appeared unable to pay salaries. In October it reported a net loss of R1.7bn, while its balance sheet was overindebted to the tune of R3.4bn.

SABC

The public broadcaster in 2019 again had to approach National Treasury for financial aid. It sought a R3.2bn financial support package from the government, as it faced a the possibility of a blackout and looming job cuts. 

The broadcaster was in October granted a R2.1bn lifeline, after meeting some of the conditions set by the government. Communications Minister Stella Ndabeni-Abrahams said in late December that the broadcaster would need to provide her department with detailed plans to solve its cashflow problems before it receives the remaining R1.1bn. 

The corporation suffered a net loss of R482.4m in the period ended March 2019, amid the late payment of staff salaries and an inability to pay creditors.

Jobs were also on the line earlier in the year as the SABC looked for ways to trim costs. However, the plan to slash as many as 981 permanent and 1200 freelance staff was put on ice.

saa  |  denel  |  eskom  |  economy  |  state-owned enterprises
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