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Budget Speech 2019

State-owned enterprise restructuring

 

Madam Speaker, I said in October that we would have no holy cows when it comes to our approach to state owned enterprises.

 

Eskom

 

In the State of the Nation Address, the President announced a clear and executable plan for electricity. At the core of this plan is the subdivision of Eskom into three independent components. This will set the electricity market on a new trajectory, and allow for more competition, transparency and a focused funding model.

 

Pouring money directly into Eskom in its current form is like pouring water into a sieve.

 

I want to make it clear: the national government is not taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it. We are setting aside R23 billion a year to financially support Eskom during its reconfiguration.

 

The fiscal support is conditional on an independent Chief Reorganisation Officer (CRO) being jointly appointed by the Ministers of Finance and Public Enterprises with the explicit mandate of delivering on the recommendations of the Presidential Task Team. We will make announcements in this regard in the coming weeks.

 

Minister Gordhan and the strong team he has built at the Department of Public Enterprises will continue to exercise close and ongoing monitoring of Eskom.

 

Other state-owned enterprises

 

On other state-owned enterprises, we are reviewing our framework for state-owned enterprise support. Government has revised the contingency reserve upwards to R13 billion for 2019/20 to respond to possible requests for financial support.

 

Financial support will be budget neutral as far as possible.

 

During this past financial year, total guarantee utilisation increased by R51.1 billion:

1. Eskom used an additional R50 billion of its R350 billion guarantee in 2018/19.
2. Denel was granted a further R1 billion guarantee.
3. SAA guaranteed debt increased by R6.2 billion.
4. My congratulations to the Land Bank, which repaid debt, reducing government’s guarantee exposure. Other entities reduced their guarantees, unfortunately in some cases as a result of appropriations.

 

We must tighten the guarantee rules. If a state-owned enterprise applies for a government guarantee for operational purposes, it will be required to appoint a CRO in concurrence with the National Treasury and its bondholders. The CRO will undertake a full operational and financial review. When banks need state support, we appoint a curator. When provincial and municipal finances are in disarray, government can take over the running of the administration.

 

These rules should also apply to all SOEs.

 

Cabinet is considering a proposal to end the issuing of guarantees for operational purposes.

 

Expiration dates on guarantees will also be strictly enforced. As the President announced, strategic equity partners will be found where possible.