As State-owned entities (SOEs) continue to rely on government bailouts and dominate the guarantee portfolio of the fiscus, Finance Minister Enoch Godongwana has announced conditional in-year allocations to various SOEs in the National Budget speech delivered on February 22.

These include allocations to arms maker Denel, the South African National Roads Agency Limited (Sanral) and freight utility Transnet to the tune of R30-billion, to enable these entities to “continue supporting economic growth”.

In particular, funds amounting to R3.4-billion have been allocated to Denel through the Special Appropriation Act of 2022, with set conditions relating to the implementation of its turnaround plan and clarity on a sustainable business model.

In turn, the Special Appropriation Act has provided Transnet with R2.9-billion to accelerate locomotive repair and maintenance. However, concerns remain regarding the entity’s ability to service the current demand for cargo transportation on the freight system and keep pace with tonnage growth. The Adjustments Appropriation Act of 2022 then provided an additional R2.9-billion to Transnet to restore infrastructure damage caused during the April 2022 floods in KwaZulu-Natal, for which work is underway.

Another provision in the Special Appropriation Bill ensures that Sanral will receive R23.7-billion to repay its maturing debt and service debt-related obligations.

Further proposed in-year allocations of R1-billion to South African Airways (SAA) aim to assist the entity’s business rescue process, while R2.4-billion to the South African Post Office will help to implement its turnaround plan and reduce contingent liabilities.

The Land Bank remains in financial distress and the process to finalise a solution is ongoing. An amount of R5-billion that was retained in the 2022/23 contingency reserve in the 2022 Medium-Term Budget Policy Statement will be allocated to the Land Bank with conditions attached to its use.

Godongwana says Sanral, the Water Trading Entity, the Trans-Caledon Tunnel Authority (TCTA) and the Passenger Rail Agency of South Africa (PRASA) recorded a combined cash surplus of R37.4-billion in 2021/22, however, owing to significant infrastructure investments planned, Sanral, PRASA and TCTA will likely report a deficit in the outer years of the medium term – 2024/25 and 2025/26.

In particular, Sanral will increase the length of the network in active maintenance from 1 200 km in 2022/23 to 2 400 km in 2025/26, and the length of the network in active strengthening to 600 km by 2025/26.

Between 2012/13 and 2021/22, SOEs received about R266-billion in bailouts from government. Contingent liabilities arising from SOEs have risen from R84-billion in 2008/09 to R478-billion in 2022/23.

The 2022 Budget review outlined the need for a new framework for managing bailouts to SOEs to reduce fiscal risks and promote long-overdue reforms.

The preliminary framework will be published in March for consultation and will, thereafter, be submitted for Cabinet approval. The framework aims to link bailouts of these entities to a range of reforms needed to make them sustainable and efficient.

Godongwana affirms in the 2023 Budget that oversight teams have been set up to monitor progress on the implementation of bailout conditions and that action will be taken against the transgressor in the case of non-compliance.