Public Enterprises commended for progress in SOEs

The Portfolio Committee on Public Enterprises has applauded the Department of Public Enterprises (DPE) for its progress in dealing with the challenges facing state-owned entities (SOEs).

“There are many developments that are being observed since the last meeting and this is very encouraging,” said Chairperson of the Portfolio Committee on Public Enterprises, Khaya Magaxa.

The Department of Public Enterprises appeared before the Portfolio Committee on Public Enterprises on Wednesday, to brief the committee on progress made in addressing governance challenges facing SOEs.

Briefing the committee, newly appointed DPE Director-General Kgathatso Tlhakudi said it is the department’s responsibility to ensure that the seven major SOEs that fall under their jurisdiction are financially sustainable, adequately funded and operationally robust, among other things.

The entities include Alexkor, Denel, Eskom, Safcol, South African Airways (SAA), South African Express, and Transnet.

The committee heard that three of the seven entities, Denel, Safcol, and Alexkor have reported financial losses for the 2019/20 financial year.

The significant decline in Denel’s revenue collection

Tlhakudi said the arms company, Denel, recorded another loss of R1.7 billion due to the significant decline in revenue collection. The department said the loss is directly attributable to the current liquidity challenges.

The third-largest state-owned company in South Africa, the South African Company Limited (Safcol), reported a loss of R47 million also as a result of the decline in revenue collection and high operating expenses, while the diamond mining company, Alexkor, reported a loss with no revenue-generating activities.

The diamond entity depends solely on the income from the Pooling and Sharing Joint Venture (PSJV).

The department’s Deputy Director-General Jackie Modisane said the performance of the PSJV has been erratic because of poor management, corruption, and low diamond prices.

“Consequently, PSJV’s liquidity challenge has had a substantial impact on Alexkor’s financial position. Alexkor is therefore not a going concern,” Modisane said.

Modisane told the committee that Alexkor’s cash reserves are expected to be depleted by September 2020.

“The department is not able to provide further funding to the entity, which is unable to generate revenue. The entity is unable to access financial markets, and neither can it request support from the fiscus. Alexkor’s financial projections for the financial year 2020/21 are not available due to the winding down of its head office,” Modisane said.

With regard to Eskom, Modisane said the increase in revenue at the power utility is underpinned by the increase in tariffs.

However, Modisane noted that although cash from operations is increasing, it is insufficient to cover the increasing costs.

Increase in Transnet’s revenue

Modisane said that Transnet’s revenue has increased by 3% to R57 billion in the 2019/20 financial year.

The department attributed this growth to the lower demand than previously, which therefore resulted in low-volume performance.

“According to the Corporate Plan, the revenue was expected to increase to R78 billion, but the event of COVID-19 and lockdown make it unlikely that this will be achieved,” Modisane said.

On the strengthening of governance structures and tools at the state entities, the department reported that critical positions are receiving the necessary attention at various companies.

The committee heard that Transnet has finalized the recruitment and appointment of the top executives, the Group Chief Executive Officer and the Group Chief Financial Officer.

Status on SAA, SA Express

The department also reflected on the status regarding SAA and SA Express. SAA was placed under business rescue in December 2019, due to declining performance and its inability to pay its debts.

Modisane said the Business Rescue Plan was approved in July 2020 by creditors, and various options of raising funds to implement the business rescue plan are being considered. This is being carried out with the assistance of Rand Merchant Bank which has been appointed as Transaction Advisor to ensure that the best option of securing funding is chosen.

“SA Express was placed under business rescue in February this year and was subsequently placed under provisional liquidation on 29 April 2020 by the High Court. The provisional liquidators have advertised the expression of interest for the sale of the business,” Modisane said.

According to the department, there is a likelihood that the airline may be liquidated on 30 September 2020, should there be no interest from any potential investor. –



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