Supplementary Budget 2020

Little new for Eskom and SAA in Budget as spotlight turns to state wage bill

There were few surprises for beleaguered state-owned entities Eskom and South African Airways when Finance Minister Tito Mboweni tabled his 2020 Budget in Parliament on Wednesday afternoon.

Instead, the spotlight was squarely on proposals to reduce the public sector wage bill by R160.2 billion over three years.

Over the past 12 years, government has allocated R162 billion to "financially distressed" SOEs, of which Eskom accounts for more than 80%.

Following Budget 2019, government has reprioritised funds to set aside R60.1 billion for all state-owned enterprises over the medium term.  

Over the next three years, government will transfer R112 billion to Eskom, to enable it to meet its short-term financial obligations, while R16.4 billion has been set aside over the next three years for SAA to repay its guaranteed debt and interest costs, according to Treasury.

In his mid-term Budget policy statement in October 2019, Mboweni said Eskom would not be granted debt relief until management could show progress on reforms. The financially-distressed SOE does not make enough money from selling electricity at current prices and volumes to pay the cost of interest on its R450 billion debt without state aid.

At a briefing with journalists earlier on Wednesday, Mboweni commented on labour federation Cosatu's proposal to use funds from the Public Investment Corporation (PIC) and other state institutions to take on R254 billion of Eskom's debt. This would effectively reduce the power utility's debt to a more manageable R200 billion.

'Use pensions from all of us'

"It's not a bad idea actually," Mboweni said. The PIC invests on behalf of the Government Employees Pension Fund (GEPF). Mboweni said that not only public service worker pensions should be used to solve Eskom's debt problem, but pensions from "all of us".

He said the proposal "moves the debate further" and encourages private participation in Eskom. "I think it is a good idea. It must be encouraged," he said.

The PIC and the GEPF have said that they have not been consulted about the proposal. The Standing Committee of Finance has requested that the PIC, GEPF, Cosatu and Eskom brief Parliament on the proposal by next week.

More funding for SAA may be needed

After SAA was placed under business rescue in December 2019, government initially committed R2 billion to assist the process, which would match R2 billion provided by the private sector.

It took government longer than expected to uphold its end of the agreement. Government managed to secure a R3.5 billion loan from the Development Bank of Southern Africa at the end of January – to prevent the airline from being liquidated. The airline has also started to embark on cutting routes to save costs. 

But Public Enterprises Minister Pravin Gordhan told Parliament's Standing Committee of Public Accounts that the funds would run out by March.

According to the Budget Review, government anticipates that more funding will be required to cover restructuring costs linked to the business rescue plan. The plan was set to be finalised this month but has not yet been made public.

Government also plans to further assess the viability of keeping state-owned low-cost airline SA Express, which according to Treasury has a "limited role" in the local aviation market.

The airline, which flies secondary routes, including Bloemfontein, East London, Gaborone in Botswana and Walvis Bay in Namibia, plans to appeal a recent court order that it be placed in involuntary business rescue as it faces liquidity challenges.

Treasury noted that SA Express is struggling to settle short- to long-term obligations as they become due.

According to Treasury, the airline's cumulative losses amount to R1.2 billions over the past 10 years. Last year, the airline failed to table its annual 2018/19 report before Parliament on time, as it was unable to address going concerns.

Mboweni has previous suggested that government consider selling SA Express as a "case study" of privatisation.

According to the National Budget, other SOEs which stand to benefit from additional funding include state-arms manufacturer Denel and national broadcaster SABC.

The state granted Denel a R1.8 billion lifeline to help aid its turnaround plan – another R576 million has been allocated to the SOE for the 2019/20 financial year – with the condition that it "speedily" implement its turnaround plan.

In the 2019/20 fiscal year, government allocated R3.2 billion to the SABC. R2.1 billion was transferred to allow the broadcaster to pay its bills in October last year. The remaining R1.1 billion transfer is expected to be made by 31 March 2020. These funds, like all other allocations made to SOEs, are subject to conditions which have to be met.

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