More than R308bn directed to bailing out failing SOEs

Denel earmarked for R3bn as government admits defence SOE cannot meet its obligations as they fall due.
Image: Supplied

More than R308 billion has been directed to bailing out failing state-owned enterprises (SOEs), Finance Minister Enoch Godongwa said in his Budget speech on Wednesday.

Watch/read: Finance minister delivers the Budget 2022 speech

The government has admitted military and aerospace equipment manufacturer Denel cannot meet its obligations as they fall due and has allocated the company R3 billion in the current financial year to cover capital and interest payments on guaranteed debt.

Recent reports have indicated that Denel has been unable to pay workers’ full salaries for the past two years and currently owes its staff about R636 million in unpaid salaries and R900 million to suppliers.

The Budget Review said broader alignment is required between the Department of Defence, the Department of Public Enterprises, the National Treasury and other relevant stakeholders to agree on Denel’s future.

“This will enable Denel to implement its strategic plan to consolidate operations, dispose of non-core assets and move ahead with identified strategic equity partnerships,” it said.

Read: South African defence firm Denel’s bonds suspended from local exchange

The review highlighted the financial plight of many SOEs and repeated what was said in last year’s Medium-Term Budget Policy Statement that some state-owned companies will be disposed of.

“The Presidential State-Owned Enterprises Council is developing a new approach to government’s management of these companies: some will be retained, while others may be disposed of or consolidated.

“The future of state-owned companies will be informed by the value they create and whether they can be run in a sustainable manner.

“During 2022/23, the National Treasury will publish a framework outlining the criteria for government funding of state-owned companies.

“Government will guide and support credible restructuring plans. Guaranteed debt continues to have the full backing of government,” it said.

“This is what we mean by tough love!,” Minister Godongwana said in his Budget speech.

He pointed out that government will reduce the continual demands on South Africa’s limited public resources from SOEs and stressed the need for SOEs to develop and implement sustainable turnaround plans.

Godongwana said government continues to support Eskom to remain financially sustainable during its transition and the power utility has to date been provided with R136 billion to pay off its debt with a further R88 billion promised until 2025/26.

“We acknowledge, however, that Eskom is faced with a large amount of debt that remains a challenge to service without assistance.

“The National Treasury is working on a sustainable solution to deal with Eskom’s debt in a manner that is equitable and fair to all stakeholders,” he said.

The Budget Review said SOEs in 2021/22 made limited progress in their reforms, but highlighted that Eskom had registered its transmission business as a subsidiary and repeated that plans are being finalised to sell a stake in South African Airways to a strategic equity partner.

It said a number of SOEs have missed their capital investment and loan disbursement targets over the past 12 months, with the Covid-19 pandemic and associated lockdowns reducing operational income and slowing restructuring plans, further affecting unsustainable business models that often require state intervention.

“The National Treasury will publish a framework outlining the criteria for funding state-owned companies to manage this significant area of fiscal risk,” it said.


In a section on contingent liabilities, which state obligations that will result in expenditure only if a specific event occurs, the Budget Review listed the government’s guarantee exposure to SOEs.

This exposure consists of the sum of the outstanding value of a loan, accrued interest and adjustments to inflation-linked bonds.

However, the review stressed that the guarantee amount reflects only the capital value of the loan and, as a result, exposure may exceed the approved guarantee amount.

The review said the total amount of approved guarantees to SOEs is expected to decrease by R21.5 billion to R560.1 billion by the end of March 2022, with associated exposure estimated to increase by R32.1 billion to R416.8 billion.

It said Eskom accounts for 78.7% of these guarantees.

Major changes to the guarantee profile in 2021/22 included:

  • Eskom’s guarantee exposure increased by R29.6 billion to R327.9 billion due to additional drawdowns.
  • Denel’s guarantee facilities declined to R3.4 billion after R2.5 billion lapsed following the cancellation of the Egyptian missile contract and the maturity of R1 billion of its debt.
  • Guarantee exposure for the Land Bank, South African Airways and the Trans-Caledon Tunnel Authority decreased as debts were paid down.
  • The South African National Roads Agency Limited’s (Sanral) guarantee exposure increased by R11.7 billion due to accrued interest and revaluation of inflation-linked bonds.

The review provided an update on the financial position of several SOEs.


It said Eskom continues to rely on government guarantees and equity injections to finance its operations, adding the electricity availability factor fell from 66.7% to 64.2% in the year to March 31, 2021, with power cuts continuing.

The review said delayed and inadequate maintenance has resulted in deteriorating and unreliable performance, leading to higher maintenance costs.

It said the Eskom Board cancelled its Short-Term Power Purchasers Programme, which aims to procure power from existing facilities with excess capacity, enabled through short-term contracts, because the regulator granted approval for cost recovery for only one of the three years applied for, which increased Eskom’s financial risk due to tariff uncertainty.

Eskom continues to focus on improving generation performance and reducing load shedding and by March 31, 2021 had used R281.6 billion of its R350 billion government guarantee facility, with another R7 billion committed.

“As Eskom redeems some of its maturing debt, it creates space within the limits of the facility.

“Taking into account redemptions over the period, the minister of finance approved a special dispensation to allow the utility to access additional guaranteed debt of R42 billion in 2021/22 and R25 billion in 2022/23, which is still within these limits.

“Meanwhile, government has provided Eskom with equity support of R31.7 billion in 2021/22,” it said.

The review said although Eskom has registered its transmission unit as a subsidiary with the Companies and Intellectual Property Commission, it missed its deadline of December 31, 2021 to complete the legal separation of this unit, in part because lenders have not yet approved the proposed restructuring.

It said the generation and distribution entities are expected to complete legal separation by December 31, 2022 and Eskom has prepared financial statements for the three entities and has applied to the regulator for a transmission licence.

Read: Eskom’s poor plant performance to weigh on Nersa tariff decision

South African Airways

An amount of R16.4 billion was set aside in the 2020 Budget Review for SAA over the 2020 medium-term expenditure framework period to settle state guaranteed debt and interest costs.

The review said government has to date paid R14.6 billion of this amount, with the remaining R1.8 billion to be paid in 2022/23.

The 2020 Medium-Term Budget Policy Statement allocated an additional R10.5 billion to SAA in 2020/21 for the implementation of the business rescue plan.

The review said the Department of Public Enterprises aims to finalise the partial sale of SAA to an identified strategic equity partner in early 2022.

The carrier commenced scheduled flights in September 2021 in line with plans for a conservative re-entry into the domestic and regional markets and it intends to introduce long-haul routes in the second half of 2022, it said.

The Zondo Report on SAA, SAAT and SA Express
Airline industry slowly recovering from lockdown

South African Broadcasting Corporation (SABC)

The review said the SABC’s losses grew from R511.4 million in 2019/20 to R530.2 million in 2020/21.

It said the Covid-19 lockdown led to a significant drop in advertising spending and revenue and the SABC has retrenched employees and revised its advertising sales model as part of a plan to make the company financially sustainable.

Interim financial reports show marginal increases in revenues, associated with the easing of lockdown restrictions, it said.


The review said state rail and ports operator Transnet reported a net loss of R8.3 billion in 2020/21 compared to a restated net profit of R2.9 billion in the prior year.

It said restrictions on economic activity associated with Covid-19 affected rail, port and pipeline sales, with rail volumes also suffering from cable theft, power failures, vandalism, adverse weather and derailments.

The bulk and container terminals operated at reduced capacity during the initial lockdown while pipeline volumes were lower than the prior year due to travel restrictions and the impact of fuel theft, it said.

Read: Transnet procurement corrupted by Gupta enterprise and its puppets


Sasria provides short-term insurance for risks such as public disorder, strikes, riots and terrorism and has paid dividends amounting to R12.8 billion from surpluses to government in all but two years since 1999/2000.

However, the Budget Review said the outbreak of public violence and looting in July 2021 led to a large number of claims totalling R32 billion, resulting in Sasria being unable to meet its payment obligations from its available cash reserves, investments and reinsurance coverage.

To help settle claims and ensure that the insurer has sufficient capital to meet regulatory requirements, government has allocated R22 billion to Sasria in the current financial year.

This includes R3.9 billion through the Second Special Appropriation Act (2021), R11 billion through the 2021 adjustments budget and R7.1 billion allocated through section 16 of the Public Finance Management Act, which is used to respond to unforeseen and unavoidable circumstances.

To strengthen its ability to respond to risks without relying on government, Sasria will increase premium prices, review reinsurance arrangements and explore ways to increase its client base, it said.

Listen/read: Muzi Dladla of Sasria on its new premium skyrocketing



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Is there any SOE which is actually makes any money …..? 3 bijons more to Denel and we all know its a dead man walking. SAA, Transnet, PRASA, PetroSA, PMP, Eskom …… holy moly.

These guys are living in a parallel universe. And there are folks still willing to lend ZA money?

End of comments.




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