…..article dated 25 August 2020……
DPE presents bleak picture….
As part of a portfolio committee meeting covering the status of the seven SOEs under the umbrella of the Department of Public Enterprises (DPE), new director general, Khathatso Tlhakudi, provided a sombre picture of the current financial malaise within the SA public sector. However. he ended up on a more positive note with regard to Denel and SAA. On Eskom, he said, he would make some comment but as they were reporting on a regular basis to Parliament, he said he would not report in great depth.
On Denel, he commented that he had “a good feeling that acting CEO Talib Sadik would hold the situation until a new CEO was appointed”, saying that “we need Denel for strategic reasons”. He said that Sadik had the necessary enthusiasm and drive to hold the fort.
As far as SAA was concerned, DPE “had made good progress with a business rescue plan which had now been approved” which fact he claimed was “a major milestone after what had happened beforehand”. Now it was just a question if support could be found for the plan.
Tlhakudi commented that a good deal of the problem at Eskom, other than the specifics of state capture, was that most of the municipalities were not investing adequately in their distribution networks which he said were “falling apart at the nation’s expense”.
On electricity distribution “much of the problem could be put down to bad town planning”, he said. “As a result of an inability to provide a proper “pay as you go” service, informal settlements had simply connected themselves to the network, resulting in overloading and continual damage.”
Another issue was that councils should not just collect rates from communities but had to also invest in those communities. Consumer attitudes had to change, Tlhakudi said. Eskom was not in a position to subsidise non-payment in infrastructure, he said. “Responsible management is called for at community level and consumer attitudes have to change”. He looked to CoGTA to assist in bring such changes about, as well as the departments of Human Settlements, Water & Sanitation and Public Works to play their roles more purposefully.
Not all bad
DG Tlhakudi said that an infusion of new thinking had started at DPE. “New ideas are emerging, he said. Great progress had been made with the ports; business was flowing well through the Maputo Corridor with the export of exporting magnetite; and activities around wine and fresh produce were getting some good numbers, ” he listed. “The story at Transnet is coming right and the Trade and Industry Committee will be impressed, despite the problems of COVID”.
He concluded that DPE was in the process of finding new ways to intervene and assist timeously in SOE and departmental problems and cut short any drift towards malfeasance and corruption with intervention from the top, on an immediate response basis.
Overview of the SOE seven
In an overview of the DPE portfolio, Ms Jacky Molisane of DPE took MPs through the sorry picture.
In alphabetical order, she recounted that (1) Alexkor, a diamond mining business and which has been attempting to establish a diamond polishing venture down the line, had reported a loss in the 2019/2020 financial year of R63m. This was in part due to low diamond prices, not helped by corruption at management level at its mine. Its cash reserves will be depleted by September and DPE. Furthermore, its head office is being wound down.
Denel (2), which had been in the newspapers a lot this month with attempts to save the entity for its strategic value, reported a loss of R1.7bn for the 2019/20, its equity being well below the level of R4bn required as a going concern for investors. This, despite a R1.8bn funding in the year under review. Ms Molisane said that R576m allocated for the 2020/21 has not been passed on by DPE at this stage, since the impact of COVID-19 had resulted in more strain for Denel, the position now being fluid. An acting CEO was currently holding the fort.
As far as Eskom (3) was concerned, Ms Molisane, giving a short picture, saying the simple facts were that any increase in revenue would purely be mainly reflected as due to increases in electricity tariffs. Although cash from operations might be increasing, Ms Molisane said, earnings before interest, taxes, depreciation, and depreciation were never going to be sufficient to cover increasing costs. DPE and the taxpayer, as the shareholder, were not receiving a return on investment and the entity was a serious drain on the economy.
South African Forestry Company (4) had reported a loss of R47m for the year under review, mainly as a result of the decline in revenue and high operating expenses. A fair value adjustment saved the company from worse figures and Safcol badly needs re-investment in its equipment and operations.
South African Airways (5) has been under business rescue since December 2019 due to its declining performance and now the inability to pay its debts as they fall due. A business rescue plan was approved in July 2020 by all creditors. Various options for raising funds were now being carried with the assistance of RMB as transaction advisor, Ms Molisane said. There was every hope that a partner would be found before 17 September.
Old story, old routes
On SAA, DG Khathatso Tlhakudi added the fact said the Department had brought in “some of the best brains, working together linked around the world to help it implement a plan mainly people who understood the airline industry.” Once a strategy was implemented for SAA, he said, DPE would be looking, first for a feeder network to sustain the airline, and then a decision was to be made as to the best way forward to recover routes. Right now, “effort is being applied to help SAA out of the situation it found itself in”.
SA Express (6) was placed under business rescue in February 2020, Ms Molisane said, but a credible business plan was not found and liquidators called in. With little likelihood that any expression of interest will be shown, SA Express could be liquidated at the end of September this year.
Ms Molisane then quickly touched on Transnet (7) where revenue had grown marginally by 3% to R75bn for the 2019/20 year under review but decline in demand is expected for the coming year due to COVID-19 and lockdown circumstances. Revenue at an expected figure of R78bn for 2020/21 therefore looked very unlikely. Given that Transnet would eventually get over the COVID setback, Molisane’s figures indicated a possible break-even point in the near future.
For three quarters of an hour, MPs from across party lines criticised DPE for its handling of a situation over the months preceding, a period in which in their view things had been allowed to get totally out of hand. It was pointed our , however, by the DPE team that it was the system of government that was at fault as the individual boards ran the SOEs and there was a limit to which DPE could interfere.
Point after point was raised, eventually leading to a relatively sensible overview from Ghalib Cachalia (DA) who calculated that the seven SOEs were the major debt trap that had cumulatively led South Africa into its present sad state, whilst also being the home of state capture. Cachalia told DPE that they had to go about things differently, and very soon.
With a warning that SA was “falling off the fiscal cliff”, Cachalia remarked that “tinkering around with balance sheets and expenses was getting the country nowhere” and that some new management concepts “were needed and needed urgently”. The objectives of DPE were “to lead with vision a stable of state entities that led South Africa into new territory and uplifted the poor”. Quite the reverse was happening, he said.
Sibusiso Gumede (ANC) said the quagmire that DPE found itself in was contributed to by the inability state to intervene at any particular point, having to deal with a balance sheet problem well after the event. He said, “Whilst it is commendable that DPE itself has shown good performance, it had to start running ‘good’ SOEs as well. He said, “One cannot have an excellent department running ‘bad’ SOEs and we cannot have business as usual any more’.