Treasury weighs in on risk of SOEs’ financial conditions

Wednesday, October 26, 2022

National Treasury has warned that the poor financial condition of major State-owned companies (SOEs) presents government with the most contingent liability risks.

In the Medium Term Budget Policy Statement (MTBPS), National Treasury said some of these risks have already materialised, requiring resources from the budget.

“By 2024/25, contingent liabilities are expected to exceed R1 trillion. At this stage, the fiscal risk statement does not yet take into account changes related to planned debt relief, as these are tied to conditions that still need to be finalised between the relevant parties.”

Delivering the MTBPS on Wednesday, Finance Minister Enoch Godongwana said fiscal support to SOEs remained a challenging balancing act, given the many competing priorities and limited resources.

“Funding to SOEs will now come with strict pre- and post-conditions. Pre-conditions mean that SOEs will need to comply with these conditions before they receive government support, not after. Non-compliance to conditions means no funding.”

In this regard, he said Transnet would be allocated R2.9 billion to ensure the return of out-of-service locomotives.

This, he said, would be complemented by R2.9 billion from in-year spending adjustments to deal with flood damage, which affected its operations in eThekwini, KwaZulu-Natal.

Denel was allocated R3.4 billion to support recent progress made to stabilise the entity. The Minister said the allocation would be augmented by R1.8 billion in the sale of non-core assets and will unlock a committed order book of R12 billion awaiting execution.

The document indicates that government’s guarantee portfolio decreased from R788 billion in March 2021 to R758 billion by March 2022, largely because of a reduction in the guarantees granted to the Trans-Caledon Tunnel Authority and to South African Airways.

The department said guarantee exposure increased from R567 billion in 2020/21 to R594 billion as at 31 March 2022, driven largely by further drawdowns by Eskom, which accounts for 78 percent of guarantees to state-owned companies.

The independent power producer programme guarantee increased from R176.7 billion to R191.2 billion with the signing of additional contracts.

The minimum criteria for the consideration of guarantee requests by the Minister of Finance require state-owned companies to demonstrate their ability to service debt that would be acquired using the guarantee.

“In 2021/22, no guarantee requests that met the minimum criteria were received, so no new guarantees were issued. As a result, the volume of the exposure declined. However, the quality of the existing exposure is still very poor.

“Deeper financial, governance and structural reforms are required to sustainably improve performance and operations at major state-owned companies,” the department said. –

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