The Department of Public Enterprises appeared in parliament on Wednesday (19 August) to give an update on the progress it is making in addressing governance challenges facing state-owned entities (SOEs).
Newly appointed director-general of the department, Kgathatso Tlhakudi, said it is their responsibility as the department to ensure that the seven major SOEs that fall under their jurisdiction are financially sustainable, adequately funded and operationally robust, among other things.
The entities include Alexkor, Denel, Eskom, Safcol, South African Airways (SAA), South African Express, and Transnet.
Diamond mining company Alexkor reported a loss with no revenue-generating activities.
The diamond entity depends solely on the income from the Pooling and Sharing Joint Venture (PSJV).
Jackie Modisane, deputy director-general of the Enterprises Department, said the performance of the PSJV has been erratic because of poor management, corruption and low diamond prices.
“Consequently, the PSJV’s liquidity challenge has had a substantial impact on Alexkor’s financial position. Alexkor is therefore not a going concern,” she said.
Modisane told the committee that Alexkor’s cash reserves are expected to be depleted by September 2020.
She said the department is not able to provide further funding to the entity, which is unable to generate revenue. Furthermore, she said the entity is unable to access financial markets, and neither can it request support from the fiscus.
Alexkor’s 2019 losses amounted to R173.6 million.
Arms company Denel recorded another loss of R1.7 billion due to the significant decline in revenue collection.
The department said the loss is directly attributable to the current liquidity challenges.
Denel needs to find funds to honour a court ruling that it must pay outstanding salaries and meet statutory obligations, such as paying into its employee pension fund.
Its former chief executive told Reuters last month that Denel may not survive the next few months unless the government lets it use some promised bailout funds to generate revenue rather than repay debt.
Modisane said that Eskom reported an increase in revenue underpinned by the increase in tariffs.
She said although cash from operations is increasing, it is insufficient to cover the increasing costs.
Seen as the biggest risk to the nation’s economy, Eskom has received R133 billion ($8 billion) in bailouts since 2008 and is due to get another R112 billion over the next three years.
Eskom doesn’t generate enough cash to meet its costs and is surviving on government bailouts. Its debt pile stands at R454 billion, of which R300 billion is guaranteed by the government, Bloomberg reports.
At last reporting, Eskom was projecting a R20 billion loss for the 2020 financial year.
The third-largest state-owned company in South Africa, the South African Forestries Company Limited (Safcol), reported a loss of R47 million also as a result of the decline in revenue collection and high operating expenses.
The group’s mandate is to conduct forestry business which includes timber harvesting, timber processing and related activities, both domestically and internationally.
It currently employs around 5,000 people through direct and indirect employment and by extension, are responsible for about 20,000 lives in communities adjacent to its operations.
South African Airways (SAA) and South African Express
SAA was placed under business rescue in December 2019, due to declining performance and its inability to pay its debts.
ABusiness Rescue Plan was approved in July 2020 by creditors, and various options of raising fund to implement the business rescue plan are being considered.
“This is being carried out with the assistance of Rand Merchant Bank which has been appointed as Transaction Advisor to ensure that the best option of securing funding is chosen,” said Modisane.
SA Express was placed under business rescue in February this year and was subsequently placed under provisional liquidation on 29 April 2020 by the High Court. The provisional liquidators have advertised the expression of interest for the sale of the business.
According to the department, there is a likelihood that the airline may be liquidated on 30 September 2020 should there be no interest from any potential investor.
On the strengthening of governance structures and tools at the state entities, the department reported that critical positions are receiving the necessary attention at the various companies.
In May, SAA’s 2019 financials reflected a R5 billion loss for the company, while SA Express losses amounted to R590 million.
On a more positive note, Transnet’s revenue grew by 3% to R57 billion in the 2019/20 financial year.
The department attributed this growth to the lower demand than previously, which therefore resulted in low-volume performance.
“According to the Corporate Plan, the revenue was expected to increase to R78 billion, but the event of Covid-19 and lockdown make it unlikely that this will be achieved,” Modisane said.
The committee also heard that Transnet has finalised the recruitment and appointment of the top executives, the Group chief executive officer and the Group chief financial officer.