With State-owned entities (SoEs) posing very serious risks to the fiscal framework, Finance Minister Tito Mboweni on Wednesday said that National Treasury was “taking very serious steps to fix the fiscal position and SoEs”.

With funding requests from South African Airways (SAA), the South African Broadcasting Corporation (SABC), Denel, Eskom and other financially-challenged SoEs having increased, Mboweni said that government had revised the contingency reserve upwards to R13-billion for 2019/20 to respond to possible requests for financial support. This excludes any requests from power utility Eskom, which is in severe financial distress.

Commenting on the embattled power provider, the Minister referred to President Cyril Ramaphosa’s State of the Nation Address earlier this month, in which he had announced that Eskom would be split into three different units. Ultimately, the intention of the unbundling was to set the electricity market on a new trajectory, and allow for more competition, transparency and a focused funding model.

Mboweni stressed that the national government would not take on Eskom’s debt and that it would set aside R23-billion a year to provide financial support to Eskom during its reconfiguration.

Meanwhile, national carrier SAA, which is not generating sufficient cash to repay its maturing debt or to cover its working-capital requirements, has secured a R3.5-billion working capital facility for 2018/19, and will require an additional R4-billion facility for 2019/20.

This funding, the Minister explained, would be acquired through a mix of government-guaranteed debt, which increased by R6.2-billion, and recapitalisation.

SAA incurred net losses of R1.5-billion in 2015/16, and R5.6-billion in 2016/17. It was also given a R5-billion lifeline in the Medium-Term Budget Policy Statement, in October.

Mboweni reiterated that SAA would have to address its short- and medium-term funding needs to finalise its 2017/18 financial statements on a going-concern basis.

About R12.7-billion in guaranteed debt matures on March 31, 2019. In the interim, SAA is negotiating with lenders to refinance this debt.

The cash-strapped airline has said that it is exploring turnaround strategies to address its debt crisis, including an internal reconfiguration of the carrier into three business units for domestic, regional and international services.

Meanwhile, military and aerospace equipment producer Denel has been granted a further R1-billion guarantee in 2019/20.

The company reported a net loss of R1.8-billion in 2017/18, which resulted in negative operating cash flows of R717-million, compared with a positive R376-million in the previous year. Denel financed the shortfall by increasing its borrowing.

The group’s gearing ratio increased from 122% to 361%, meaning that its debt is more than triple its equity, and that its cost structure is unsustainably high.

Negative operating cash flows have affected Denel’s ability to deliver on projects and meet creditor obligations. In September 2018, government provided Denel with a R3.4-billion guarantee to address its liquidity problems and support a turnaround plan.

Further, the South African Post Office (SAPO) has been given an additional R1.5-billion over the medium-term expenditure framework. In the current financial year, government has provided SAPO with a R2.9-billion recapitalisation to extinguish its entire debt, and ensure continued operations.

In 2017/18, SAPO incurred a loss of R908-million, representing a slight improvement from the R987-million loss reported in 2016/17.

While it continues to implement measures to control costs, it is expected to continue incurring losses owing to declining customer numbers and ageing infrastructure. SAPO remains reliant on debt to fund operations.

In 2017/18, government recapitalised SAPO with R3.7-billion to settle maturing debt.

Meanwhile, Mboweni congratulated the Land Bank for repaying its debt and reducing government’s guarantee exposure.

Treasury also reported that freight logistics group Transnet’s equity was healthy at R156-billion.

Transnet’s net profit increased to R4.9-billion in 2017/18, up from R2.8-billion in the prior year, largely as a result of increases in the volumes of export coal, railed automotive and port containers. Volumes, however, still fell short of targets.

Cash generated from operations increased by 12.6% from R31-billion in 2016/17 to R34.9-billion in 2017/18, while total assets improved from R353-billion in 2016/17 to R369-billion in 2017/18, mainly owing to the revaluation of rail and port infrastructure.