Treasury’s SOE liabilities headache

Cape Town – While Eskom took up the biggest chunk of government’s contingent liabilities through its R370bn guarantees, Treasury raised concern over other state-owned enterprises (SOE) in its mini budget.

“Government’s major explicit contingent liabilities are its guarantees, which stood at R469.9bn at the end of 2015/16,” it said in its Medium Term Budget Policy Statement (MTBPS) on Wednesday.

“Total guarantee exposure was R263bn at the end of 2015/16, because several entities had not fully used their available guarantee facilities.

“Government maintains its policy stance that any intervention to support state-owned companies must be deficit neutral,” it said. “Entities receiving support from government will be required to provide sound business plans, improve governance and address operational inefficiencies.”

Apart from Eskom, it listed six SOEs whose contingent liabilities needed monitoring:

1. Prasa: The fiscus committed R53bn to fund the purchase of new rolling stock and signalling equipment for the Passenger Rail Agency of SA (Prasa). “The auditor general and the Public Protector have found weak expenditure controls and contract management in this programme. This raises concern that Prasa will not be able to complete the programme on time and within budget.”

2. Sanral: Fiscal exposure to roads agency Sanral's debt stood at R35bn as at 31 March 2016. “E-toll collections and auctions are still closely monitored against projected collection levels to ensure recovery,” it said. “If government does not proceed with tolling to fund major freeways, difficult trade-offs will need to be confronted to avoid a deterioration in the national road network.”

3. SAA: Government issued a R19.1bn guarantee to SAA to ensure the company can continue to operate as a going concern. “The carrier continues to post losses,” said Treasury. “There is currently a R14.3bn exposure against the facility. Without the guarantees, SAA is technically insolvent.”

4. SA Post Office: Government has a R4.4bn guarantee exposure to the SA Post Office. “A new board and CEO were appointed, and the company has been able to raise funding to repay creditors, implement a turnaround plan and reach a settlement with labour to mitigate the possibility of strike action,” it said.

5. Land Bank: It got a R6.6bn guarantee in 2014/15, of which R5.3bn was drawn down as at 31 March 2016. The guarantee has helped the bank expand its lending by 10% in 2015/16. “Lenders have highlighted the bank’s strong governance and relationship with the shareholder as reasons to continue supporting its funding programme,” said Treasury.

6. Road Accident Fund: RAF liabilities at the end of March 2016 were revised up to R155bn from the R132bn reported in the 2016 Budget. “These liabilities are projected to grow to R345bn in 2019/20,” said Treasury. “The RAF has been insolvent for over 30 years, despite having a dedicated revenue stream in place to settle claims. Government has not yet tabled legislation to create a new equitable and affordable benefit arrangement to replace the fund.”

* Visit our Budget Special for all the budget news and in-depth analysis.

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