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State-owned enterprises (SOEs) are still not expected to receive any bailouts from government when the postponed 2025 budget is finally delivered on 12 March.
The delivery of the budget was cancelled at the 11th hour last week because of disagreements, largely over the contentious proposal for a two-percentage-point hike in value-added tax (Vat).
Dr Elna Moolman, Standard Bank Group head of South Africa Macroeconomic Research, said on Friday she believes the “SOE part of the budget is the one part that will likely remain unchanged”.
“The ‘announcement’ regarding SOEs is to my mind almost principled stances,” she said.
Moolman added that she saw the “announcements” in the budget regarding Eskom and Transnet to be almost “isolated from the Vat vision”.
The Budget Review said the 2025 Budget maintains government’s stance of not providing bailouts to state-owned companies.
“Government is focused on improving governance and the effectiveness and transparency of the guarantee framework,” it said.
“In addition, government will support critical capital investments through different mechanisms, including credit guarantees, on-lending and grant funding, where appropriate.”
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However, the review said SOEs and major public entities continue to pose a large risk to the fiscal position, with most contingent liabilities emanating from these institutions.
It said the total guarantee amount is expected to decrease from R498.9 billion on 31 March 2024 to R491.9 billion on 31 March 2025, and the exposure amount will increase by R2.7 billion to R414.3 billion over the same period.
The reduction in the total guarantee amount is due to the termination of the Land Bank’s R8 billion guarantee at the end of 2023/24.
The increase in exposure results from a R9.1 billion drawdown on the Transnet guarantee, which was offset by the net repayment of the Sanral debt of R6.3 billion and repayments on the South African Reserve Bank Loan Guarantee Scheme of R3.5 billion.
The review said Eskom, the Development Bank of Southern Africa, and the Trans-Caledon Tunnel Authority had made additional drawdowns, resulting in an increase in their exposure amounts.
It added that state-owned companies remain distressed due to weak governance, financial pressures, and ongoing operational challenges.
“For over a decade, most state-owned companies listed under schedule 2 of the Public Finance Management Act (1999) have not met the legal requirements to maintain sustainable profitability, manage risks effectively and generate returns while ensuring prudent use of public resources,” it said.
“Various initiatives, including turnaround plans agreed with government, are under way, but progress has been mixed.”
However, it said Eskom is making progress on its recovery plan, although its finances remain weak and operational performance requires significant improvement.
It said Transnet is hampered by high debt levels and needs to make faster progress on its recovery plan to improve its operations and finances.
“Over the medium term, public entities are projected to run cash deficits, mainly due to higher capital spending by the South African National Roads Agency Limited (Sanral), the Passenger Rail Agency of South Africa (Prasa), the Trans-Caledon Tunnel Authority and the water boards,” it said.
It said contingent liability risks from independent power producers (IPPs) are low, and as at 31 March 2025, the government’s commitment to the Renewable Energy Independent Power Producer Procurement Programme is expected to be R277.9 billion.
The value of signed projects, which represents government’s exposure, is expected to amount to R229.5 billion by 31 March 2025, declining to R166.4 billion by 2027/28.
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The review said Transnet is addressing a years-long financial and operational decline with the support of Operation Vulindlela and has made some progress in implementing its recovery plan.
It said estimates indicate that rail volumes will reach 165.4 million tons by the end of 2024/25.
Rail volumes fell from 226.3 million tons in 2017/18 to 151.7 million tons in 2023/24 due to derailments, inefficiency, and infrastructure damage.
Transnet reported a net loss of R7.3 billion in 2023/24 compared to R5.1 billion in 2022/23, largely due to increased finance costs.
Additional debt and higher interest rates pushed finance costs to R14.3 billion in 2023/24, placing further strain on cash flows.
The review said Transnet needs to stabilise and reduce its debt, adding that since 2018 it has shifted funds from capital expenditure to debt servicing.
“While this prevented default, the shift has come at the expense of maintaining and expanding critical infrastructure.
“Government provided a R47 billion guarantee in December 2023, which Transnet used to refinance maturing debt and take on new debt.
“Government is now providing direct support to critical infrastructure projects, such as the expansion of the land-side container terminal in Cape Town, while avoiding debt relief or general balance sheet support,” it said.
The review said Transnet’s total borrowing increased by R7.6 billion to R137.7 billion between end-March 2023 and end-March 2024, underscoring the need for better debt management.
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It said Eskom remains the largest guarantee exposure, constituting about 88% of the portfolio, but with the implementation of the Eskom debt-relief arrangement the volume of exposure to Eskom has declined.
“However, given Eskom’s share of guarantee exposure, the risk from state-owned companies remains elevated,” it said.
The review said municipal debt to Eskom rose from R74.4 billion at end-March 2024 to R94.8 billion at end-December 2024, and progress on unbundling has been slow.
The 2023 Budget Review announced government’s decision to provide Eskom with debt relief amounting to R254 billion to strengthen its balance sheet, restructure the business, and invest in necessary maintenance.
The 2025 Budget Review said that over the five-year period, the government will have provided Eskom with loans to the value of R230 billion to assist the utility in repaying its debt, which is about R24 billion less than projected at the outset and reducing the gross borrowing requirement.
“In accordance with the original agreement, the debt relief provided to Eskom will be converted into government equity over time,” it said.
This article was republished from Moneyweb. Read the original here.
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