State-owned enterprises (SOEs) that are bleeding money could see some restructuring ahead, according to the 2013 Budget, tabled by Finance Minister Pravin Gordhan on Wednesday.
These include the cash-strapped SA Airways (SAA), SA Broadcasting Corporation, SA Xpress, Denel and the SA Post Office.
“During 2011/12, (the) Airports Company [of South Africa] and Eskom recorded profits, but SAA, Alexkor and Armscor lost money.”
The losses have been attributed to policy uncertainty, costs associated with non-commercial activities, operational inefficiencies and management instability.
Government, as the main shareholder in SOEs, as well as the company boards, were not co-ordinating adequately.
“Over time, the equity of entities that persistently lose money is gradually eroded, which eventually requires that they be recapitalised.”
This meant government would have to work with the entities to develop turnaround strategies, which would include “some form of restructuring”.
SAA has been mired in controversy for years, following bailouts by government, as well as the hiring, firing and resignation of CEOs and board members.
Treasury granted the loss-making company a R5 billion guarantee in October last year, enabling it to borrow money to buy new aircraft.
This was preceded by the resignation of some board members, including chairwoman Cheryl Carolus.
Earlier this year, acting CEO Vuyisile Kona was suspended after the troubled airline’s board cited “allegations” it was investigating.
SOE’s underspend on infrastructure
According to Gordhan, SOEs (state-owned enterprises) spent 70 percent of the R131.7 billion committed to infrastructure last year (2011/12) – failing to spend enough of their budgets on key infrastructure projects.
This was an improvement on the previous year, where only 62 percent of that budget was spent.
“The shortfall against budget, however, was substantial, resulting largely from procurement and project implementation delays.”
The Budget document says that over the next three years, capital expenditure by SOEs is expected to reach R377.5 billion.
The majority of these infrastructure projects are in the energy (Eskom), transport (Transnet) and water sectors.
“Over the next three years, 43 percent of the funding required for infrastructure development by state-owned companies is expected to be raised in the debt markets, with the remainder coming from internally generated cash.”
The need for private companies to “co-invest and bring technical expertise” to massive infrastructure projects is emphasised.
“An example of this approach has been the renewable energy independent power producer programme, which attracted R46.6 billion worth of investments from the private sector in 2012/13.”