State-owned enterprises (SOEs) pose serious risks to South Africa’s fiscal framework – and the wisdom of keeping SOEs in their current form is now being questioned.
“Isn’t it about time the country asks the question: do we still need these enterprises?” asks Finance Minister Tito Mboweni, presenting his budget speech today. “If we do, can we manage them better? If we don’t need them, what should we do?”
He adds that there should be no holy cows when it comes to our approach to state owned enterprises.
“In the State of the Nation Address, the President announced a clear and executable plan for electricity,” Mboweni states.
“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,” he adds.
“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.”
Treasury has set aside R23-billion a year to financially support Eskom during its reconfiguration, Mboweni explains.
“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 [Pravin] Gordhan and the strong team he has built at the department of public enterprises will continue to exercise close and ongoing monitoring of Eskom.”
Mboweni adds that the department of finance is reviewing its framework for state-owned enterprise support.
Although 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.
“We must tighten the guarantee rules,” says Mboweni. “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.”
He adds that cabinet is considering a proposal to end the issuing of guarantees for operational purposes; and that expiration dates on guarantees will also be strictly enforced.
Where possible, strategic equity partners for SOEs will be found, Mboweni says.