Cash-strapped parastatals need to raise R300?billion

2014-08-17 15:00

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Critical state-owned companies need money to make money, but where will they get it from?

Funding gaps in infrastructure and other projects have presented a headache for the state as these projects still need to raise more than R300?billion in funding.

State-owned freight logistics company Transnet is spending R312.2?billion over seven years on an infrastructure programme called the Market Demand Strategy. It has raised R37?billion since its 2012 launch.

The Passenger Rail Agency of SA (Prasa) recently launched its R123.5?billion fleet renewal programme with the award of a R51?billion contract backed by the Treasury.

Eskom’s capital expenditure programme has a R50?billion hole between its government guarantees and the amount it needs to build power stations.

Public enterprises spokesperson Colin Cruywagen would not quantify the amount national carrier SAA required, but said reports that it needed R50?billion in funding were wrong.

Minister Lynne Brown, the public enterprises minister, said the department was looking at funding guarantees for SAA, but the airline would have to “meet conditions of the open market”, suggesting loans or bonds.

Should it go on the open market, it would be doing so for the first time.

Cruywagen said the funding would be used to consolidate SAA, SA Express and Mango into one airline. This is just one pillar of the group’s turnaround plan which, according to former public enterprises minister Malusi Gigaba at the group’s AGM earlier this year, still needed a funding mechanism.

The airline has argued it was severely undercapitalised after its unbundling from Transnet 10 years ago.

In its annual report for the year to March 2005, SAA referred to its “factual insolvency” after a R6.1?billion recapitalisation from Transnet.

In the year to March 2007, SAA raised R1.3?billion through a loan and received R653?million from the Treasury to fund restructuring costs.

And in 2010, SAA asked for a R1.5?billion equity injection from public enterprises.

Two years ago, it asked for a R5?billion government guarantee to continue operating as a going concern.

SAA has blamed its rising funding needs on its inability to invest in newer and more efficient aircraft.

It is now on its 10th turnaround strategy, dubbed Gaining Altitude.

Separately, Transnet Freight Rail boss Siyabonga Gama recently said the private sector had been asked to pitch in R100?billion towards the division’s logistics infrastructure projects – which require R209.9?billion over seven years.

Transnet will fund this partly from operations and partly from capital markets without government guarantees, according to its annual report. This is part of its overall R312.2?billion Market Demand Strategy.

Spokesperson Mboniso Sigonyela said the portion raised from capital markets made up a third of the parastatal’s investment plans.

So far, this had raised R37?billion.

“This was achieved on the strength of our balance sheet, without government guarantees,” said Sigonyela.

Eskom is on more precarious footing as it has been placed on credit watch by rating agency Standard & Poor’s – prompting the creation of an interministerial task team to find a way to pull it out of its cash crunch.

Its ratings have been in free fall since its capital expenditure programme began.

Time is running out.

Unless the task team puts a workable funding proposal on the table soon, Eskom will lose its investment grade status.

The National Energy Regulator of SA recently gave Eskom permission to recoup R7.8?billion in costs by raising tariffs.

But regulatory allowances were only one factor cited by Standard & Poor’s as a factor that had weakened Eskom’s financial position.

Other factors had created a R50?billion gap between R350?billion in government guarantees – R150?billion of which Eskom is currently using – and the cash needed for its capital expenditure programme.

Tom Harris, an energy and environment research analyst at Frost & Sullivan, recently attributed the length and expense of Eskom’s build programme to technology choices and poor project management.

Brown reportedly said one of the options the task team was looking at was the provision of convertible loans. “Negotiations are ongoing and it’s too early to comment on any particular option,” said Cruywagen.

Prasa, which falls under the transport department, has had its begging bowl out for years to overhaul its rolling stock.

Government has always funded the agency, although not in full, according to annual reports. In the five years to 2010, government funding grew 52.7% on average, and it spent R13.8?billion subsidising Prasa in the nine years to 2010. But this was not enough to cover operational and capital funding for passenger railways, forcing Prasa to spend R1.5?billion of its own reserves. This consequently weakened its balance sheet.

It appears funding options for the rest of the fleet renewal programme have not yet been discussed.

– Additional reporting by Bloomberg

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