Trouble as state companies flat out ignore budget rules and restrictions
President Cyril Ramaphosa and newly-elected public enterprises minister Pravin Gordhan appear to have their work cut out for them, as government departments and state-owned entities continue to break rules to get around budget restrictions.
According to a report by the City Press, in the past three months Treasury was forced to block state-owned entities and government departments from blowing R15 billion on irregular purchases.
These include requests from state companies SAA, Armscor, the South African Post office, the SABC, Eskom, and the environmental affairs department, the report said.
Senior Treasury officials told City Press that all they could do was refuse, but it did not mean the state companies and departments abided by their decision.
They added that in many cases, officials in state-owned enterprises (SOEs) and departments demand kickbacks from companies after securing Treasury permission to extend or award contracts without having to go out to tender first – often running into the millions of rands.
This corruption also affects service delivery, the sources said, as government departments and companies will deliberately wait until it is too late to advertise a tender after which they will ask for the current contract to be extended.
Risk
Following the tabling of the budget in February, credit ratings agency Fitch warned that, despite positive measure being implemented, it remains to be seen how fiscal policy will evolve under president Ramaphosa.
“The largest risk stems from state-owned enterprises – notably the electricity company Eskom, whose medium-term finances are under pressure from weak demand growth and the electricity regulator’s refusal to grant more substantial tariff increases,” Fitch said.
“The government does not foresee further capital injections for Eskom, and pointed to a number of potential measures, including private-sector participation, to improve its finances.
“But this approach will face significant political hurdles,” it said.
This sentiment was shared by S&P Global, which downgraded Eskom on Wednesday (28 February), amid ongoing liquidity concerns and what it believes to be insufficient government support.
Moody’s, the only ratings agency which has not downgraded South Africa to junk status, is expected to deliver its updated review before the end of March.
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