Budget 2022 | 'Tough love': Treasury snubs SAA, but Denel and Sasria score

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Finance Minister Enoch Godongwana.
Finance Minister Enoch Godongwana.
Brenton Geach/Getty Images
  • Despite having a R3.5 billion funding gap, SAA will not be receiving a lifeline from National Treasury.
  • State defence manufacturer Denel is one of the few SOEs that has been made an allocation this financial year.
  • Treasury plans to publish criteria for funding to flow to SOEs.

There won't be any additional funding for South African Airways (SAA) from state coffers this year, according to the national budget tabled by Finance Minister Enoch Godongwana in Parliament on Wednesday. 

The flag carrier SAA has a R3.5 billion funding gap and had requested assistance from Treasury - to no avail.

Treasury funded the airline's business rescue process with R10.5 billion in 2020/21. In addition, Treasury in 2020 allocated R16.4 billion to the airline over the medium term to settle its state-guaranteed debt and interest costs - so far, R14.6 billion has been paid out. The remaining R1.8 billion will be paid in 2022/23, according to the budget document.

During his speech, Godongwana shared Treasury's plans to show state-owned enterprises (SOEs) "tough love". 

"More than R308 billion has been directed towards bailing out failing state-owned companies," Godongwana told the National Assembly. SOEs will need to develop and implement sustainable turnaround plans, he added.

During a separate media briefing, Godongwana said that showing tough love does not mean there will be no support for SOEs at all. "It means we will support, provided certain conditions are met." Over time, the aim is to remove dependence on the state, he said.

Treasury plans to publish a framework that outlines criteria for funding SOEs.

Furthermore, the Presidential SOE Council is developing a new approach to manage the companies - some will be retained, while others will be disposed or consolidated.

"Their future will be informed by the value they create and whether they can be run as sustainable entities without bailouts from the fiscus," Godongwana said.

However, it is not bad news all around.

State defence company Denel has been allocated R3 billion to settle interest payments. This amount is inclusive of the R2.9 billion announced during the medium-term budget policy statement in November 2021.

Recently, the JSE suspended Denel bonds owing to its failure to submit annual results for the 2021 financial year. According to the JSE's debt listing requirements, SOEs need to submit their annual statements within seven months of the financial year-end. The company also delayed debt payments, Bloomberg reported.

The entity has over the past few years faced liquidity challenges and has struggled to pay staff salaries on time.

The company has relied on government support to reduce its debt from R3 billion to R290 million over the past two years.

Sasria and riot claims

The civil unrest in parts of KwaZulu-Natal and Gauteng last year led to a large number of claims from the South African Special Risk Insurance Association (Sasria), which provides insurance for risks such as strikes, riots, and terrorism. Claims amounted to R32 billion, and Sasria was unable to meet the obligations with its available resources.

Sasria has been allocated R22 billion in the current financial year - this includes the R3.9 billion allocated last year as well as R11 billion as part of a provisional allocation from the contingency reserve. A further R7.1 billion is also to be allocated to respond to "unforeseen and unavoidable circumstances".

Sasria will also be increasing its premium prices, review its reinsurance arrangements, and find new ways to increase its client base in order to respond to risks without having to rely on government.

The Land Bank remains in financial distress after defaulting on its debt in 2020/21. Treasury had assisted the bank - which extends loans to the agriculture sector - with R3 billion at the time and made further allocations of R5 billion in the 2021/22 fiscal year, and R1 billion for each of the next two years.

The R5 billion transfer to Land Bank is unlikely to materialise in 2021/22 owing to delays in concluding negotiations with lenders, according to the budget review. As a result, the contingency reserve for 2022/23 has been increased for the R5 billion to be paid in the new financial year. The provision of this funding is conditional. "Conditions for the release of these funds have not yet been met," the budget review read.

So far, the bank has reduced its debt by 29%, from R40.6 billion to R29.2 billion, through capital repayments, the budget review indicated. Its planned debt funding is about 58% of the total allocated between 2022/23 and 2024/25. The budget review document did not include a solution for Eskom's debt burden.

Power utility Eskom remains the largest borrower over the medium term. According to Godongwana, Treasury is working on a "sustainable solution" to deal with Eskom's debt.

Ahead of the budget, Treasury's former budget office head Michael Sachs had suggested that the tax windfall be used to pay off Eskom's debt.

Eskom has used R281.6 billion of its R350 billion government-guaranteed debt. A further R7 billion has been committed, as outlined in the medium-term budget policy statement. Government had provided Eskom with equity support of R31.7 billion in the 2021/22 financial year. Eskom accounts for 78.7% of all government guarantees.

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