State-owned entities in huge trouble

Poor management at Eskom‚ South African Airways (SAA)‚ the Post Office‚ state railway operator Prasa and the South African National Road Agency Limited (Sanral) has cost South Africans dearly and placed strain on the economy‚ the National Treasury has admitted.

In supporting documentation to the medium term budget policy statement delivered by finance minister Pravin Gordhan in parliament‚ the Treasury states that these state-owned companies “could pose risks” to the country’s public finances.

Further key interventions are foreseen‚ especially in the cases of the SAA‚ the Post Office‚ Sanral and Eskom.

SAA gets no praise from the Treasury. Its new board simply gets tasked with returning the airline to financial sustainability and filling vacant management positions. No progress in this regard is recorded.

The Post Office board is complimented on raising money to repay creditors and reducing strikes.

Sanral’s new tolling dispensation‚ and those not paying e-tolls‚ stand forewarned that they will face legal action. Treasury is closely monitoring the way in which Sanral is being managed.

Treasury believes Eskom’s recapitalisation process has improved both its liquidity and profitability.

At the same time‚ Eskom accounts for almost three quarters of contingent liability costs accruing to government from poorly managed state owned companies‚ the power producer having built up exposure of more than R200 billion. Most of this exposure is due to the obligation on Eskom to buy power from independent power producers for the next twenty years. Should the power utility fail to do so‚ the state must step in and honour the commitment somehow.

The fiscus has committed R53 billion to Prasa‚ mostly to buy new rolling stock (trains). Weak expenditure controls and contract management has however meant that the programme is unlikely to be finalised on time and within budget. Furthermore‚ expected declines in Prasa’s fare revenue and passenger numbers are reasons for concern.

Fiscal exposure to Sanral debt reached R35 billion‚ fuelled by public refusal to pay e-tolls. Treasury is clear that refusal to pay e-tolls will lead to a deterioration in roads.

SAA continues to post losses. Without continued state bail-outs at the taxpayers’ expense‚ SAA is technically insolvent.

The Post Office has exposed the state to the tune of R4‚4 billion‚ but is improving.

The Land Bank and the Road Accident Fund also remain poorly managed.

State-owned companies will struggle to be bailed out in future. It will only happen “consistent with sustainable public finances“. Capitalisation will not be done in a way that will increase the budget deficit‚ and further bail-outs will only be granted on the back of sound business plans‚ Treasury said.

Gordhan refuses to give detailed answers to questions on future energy mix

Finance minister Pravin Gordhan‚ his deputy Mcebisi Jonas and director-general in the treasury Lestja Kganyago kicked for touch on energy matters on Wednesday‚ refusing to give detailed answers to questions on the country’s future energy mix and how it will be financed.

No reference is made in favour or against nuclear in the national treasury’s medium term budget policy statement documents‚ and Gordhan‚ Jonas and Kganyago as the triumvirate at the head of the country’s fiscal governance dodged media questions on the matter.

The three men also refused to discuss how Eskom‚ which already carries major contingent liability risks‚ will be able to finance nuclear new build now that it has accepted the poisoned nuclear chalice from the Department of Energy.

On future energy supply‚ all Gordhan was prepared to say was that energy supply must stay ahead of the economic growth curve rather than follow it‚ and that he regarded the country’s energy generation ability as more important than discussions on the composure of the energy mix — thereby showing clear preference to coal‚ gas and renewables.

For his part‚ Jonas said the exact management of energy expenditure and energy mix would only be decided after discussions with Energy Minister Tina Joemat-Pettersson and Public Enterprises Minister Lynne Brown.

“Nuclear new build will only continue if it does not undermine the fiscal integrity of the country. The pace and scale will be important‚” said Jonas.

Further lack of appetite for nuclear new build was exhibited by Kganyago‚ who kept his focus firmly on collaboration with independent power producers‚ and kept the options on the future energy mix open rather than commit to anything specific.

In the medium term budget policy statement documents‚ scant reference was made to pressing energy issues.

The documents do state that lack of adequate electricity supply has imposed severe costs on the economy‚ adding that Government has worked hard to stabilise Eskom and increase the participation of independent power producers beyond the sphere of renewables‚ to include coal and gas.

Treasury even goes so far as to warn against the “dangers of overinvestment” in energy supply‚ noting that idle electricity capacity will require higher electricity prices.

Treasury also shows a strong appetite for renewables‚ noting their falling costs but omitting any reference to their lack of dependability.

It compliments Eskom for its renewed focus on maintenance work‚ and for its success at the process of getting the new power stations at Medupe‚ Kusile and Ingula operative‚ and claims that wind and solar photovoltaic generation is now cost competitive with gas and coal.

TMG Digital/Parliamentary Bureau

 

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