Grim ‘realistic’ state of SOEs laid bare

Grim ‘realistic’ state of SOEs laid bare

A Treasury report on State Owned Enterprises (SOEs) has revealed the poor financial state of Transnet, Eskom and the South African Post Office (Sapo).

The report, which provided an update on SOEs in respect of the third quarter, October to December 2023, was presented last week in Parliament.

Experts have agreed that the report paints a realistic picture of SOEs that are in debt and relying on guarantees and loans from the government.

The report said Transnet had recorded a decline in freight rail due to operational inefficiencies; theft and vandalism while port productivity is significantly lower than benchmark African and European ports. The report said Transnet’s financial position has led to it being unable to settle its 2023/24 debt maturities of approximately R14 billion.

In November 2023 the Minister of Finance agreed to a request for the issuance of a R47 billion guarantee to Transnet, subject to several guarantee conditions.

The report added that Eskom’s unaudited third-quarter performance of 2023/24 reported a loss after tax of R7.5bn with total invoiced municipal arrear debt increasing to R75.4 billion as at December 31.

The report noted: “Eskom’s profitability remains hampered by poor long-term financial sustainability arising from an inadequate tariff path, poor generating plant performance, escalating arrears in municipal debt as well as high debt servicing costs.”

On the Post Office, the report said it was in business rescue and while operating costs were being reduced due to cost containment measures being implemented by the business rescue practitioner, it continued to exceed revenue with staff costs being the main contributor to the high operating expenses.

Commenting on the state of Transnet, Malcolm Hartwell, Norton Rose Fulbright director and Master Mariner, said that the World Bank report in 2021 ranked the ports of Cape Town, Ngqura, Gqeberha and Durban as four of the five worst ports in operational efficiency, with Durban coming in last place at 351.

He said many imports and exports were now moving via neighbouring countries.

“Massive delays at the big commercial ports have seen container lines bypassing South Africa, the stream of ships avoiding the Red Sea and Suez are also avoiding South African ports for refuelling.”

Hartwell said the report accurately reflected the state of Transnet.

“Transnet has been investing in certain facilities in some of the ports and its debt has climbed. As the ports’ performance declines so does the revenue generated by ships and cargo. These two have contributed to Transnet’s debt climbing and resulted in the need for the R47 billion guarantee.

“The guarantee will help in the short-term by ensuring that Transnet does not default. However, without fundamental changes to Transnet, it will only be a short-term solution.” Professor Mihalis Chasomeris, from the Graduate School of Business and Leadership at the University of KwaZulu-Natal, said several of the guarantee conditions can contribute towards improved governance and investment in rail and port infrastructure and equipment.

Speaking on one of the guarantee conditions – establishment of the National Ports Authority as a wholly owned subsidiary – Chasomeris said it makes significant profits.

“Port users want to see port revenues being reinvested into the port’s infrastructure and equipment.

“The annual capital expenditure spend of the TNPA has been significantly lower than that allowed. So, making the NPA a subsidiary may assist in removing some of the conflicts of interest that exist between the Transnet Group and the NPA division. It is hoped that this will allow for increased capital expenditure investment into the ports.”

Ruse Moleshe, the managing director of RUBK, an energy and infrastructure consulting and advisory company, said that Eskom was still plagued by financial and operational troubles.

“The utility recorded a net loss of R7.5 billion after tax by December 2023.

“The 18.65% tariff hike, granted by the regulator, contributed to the increase in revenue, but it was offset by reduced electricity sales.

“Electricity sales have been impacted by load shedding. Eskom power plants’ performance challenges impact negatively on operational costs, including the costs of sourcing diesel to mitigate load shedding risks.”

Moleshe said Eskom would not be able to function without support from the National Treasury, as the company does not generate enough money to run its operations.

“It will take a long time to turn around the utility and stabilise its performance.

Some of the interventions which will assist it include the National Treasury taking over part of Eskom’s debt of almost R450 billion and also providing relief for qualifying municipalities to pay Eskom arrears.”

Professor Raymond Parsons, of the North-West University Business School, said that the report demonstrated the impact distressed SOEs have had on the persistent deterioration in South Africa’s public finances.

The Mercury