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Godongwana takes tough love stance on struggling SOEs as they sit on large debt and low revenue

However, the government had to step and bailout stare arms manufacturer Denel to the value of R2.9 billion to cover its debt. File photo.

However, the government had to step and bailout stare arms manufacturer Denel to the value of R2.9 billion to cover its debt. File photo.

Published Nov 12, 2021

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FINANCE Minister Enoch Godongwana has warned that state-owned entities (SOEs) continue to be a fiscal risk.

He said yesterday they were sitting on large debts and low revenue.

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In the Medium-Term Budget Policy Statement (MTBPS), Eskom, Denel, SAA and others were flagged as posing a risk to the economy.

The government has over the years been bailing out SOEs, but Godongwana has insisted that this will not continue as business as usual. He said they needed to practise tough love on the SOEs.

“In so far as SOEs are concerned, one has to practise tough love. We have not made provision now in the MTBPS. If we will make provision in February, I doubt it,” he said. He said they could not give money to SOEs when there was no value to be derived from it.

Godongwana also warned that they needed to overhaul the entities and keep those that were strategic and get rid of the ones they did not need. The MTBPS said SOEs had not been able to access the capital markets because of their weak financial position.

“Access to capital markets has become more restricted for state-owned companies as a result of weak revenue growth, poor operating performance and mounting debt-service costs. Raising interest rates and increasingly unfavourable loan terms also raise the risks associated with borrowing.

“The Covid-19 pandemic and associated restrictions on economic activity have delayed the execution of capital investment projects, muted tariff adjustments and slowed the collection of payment from users,” Godongwana said.

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The interest-bearing debt of the 10 largest borrowers grew by more than 230 percent between 2009/10 and 2020/21, rising from R266.7billion to R883bn.

Total debt redemptions for these companies will average R73.4bn a year over the medium term, with foreign debt making up 45 percent of the total, the MTBPS stated.

Eskom continued to pose a significant risk to the economy. The government has over the years pumped billions of rand into the company to keep it afloat.

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However, the power utility, encumbered with ageing infrastructure and issues from the state-capture years, is increasingly battling to keep the lights on, damaging the economy and jobs.

“Eskom continues to pose a significant risk to the public finances as it relies on government guarantees to finance its operations. Eskom had used R281.6bn of its R350bn government guarantee facility by March 31, 2021, with another R7bn committed,” said the MTBPS.

However, the government had to step in and bail out state arms manufacturer Denel to the value of R2.9bn to cover its debt.

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This as the entity was hard-pressed to pay its staff salaries, and with trade unions on the warpath.

SAA was given a bailout of R21bn in the 2020/21 financial year. Half of the money was to cover the debt and the other portion was for the business rescue process.

But Godongwana said it was not sustainable for some of the SOEs to continue to rely on the government, and something had to give.

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BUSINESS REPORT ONLINE

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