Struggling state-owned enterprises to be put under 'curatorship': Tito Mboweni

Government has resolved to tighten rules around the granting of loan guarantees to financially struggling to state-owned companies (SOEs).

It also intends to effectively put them under administration each time they request a loan guarantee from the National Treasury.

Tabling his budget speech in parliament, finance minister Tito Mboweni announced that a chief reorganisation officer (CRO) would be appointed to a parastatal whenever it received a loan-guarantee.

Mboweni said the government was reviewing its framework for SOE support and has revised the contingency reserve upwards to R13bn to respond to possible requests for financial support from cash-strapped entities such as SA Airways and the SABC.

"We must tighten the guarantee rules. If a state-owned enterprise applies for a government guarantee for operational purposes, it will be required to appoint a CRO with national treasury and its bondholders. The chief reorganisation officer will undertake a full operational and financial review.

"When banks need state support, we appoint a curator. When provincial and municipal finances are in disarray, government can take over the running of the administration. These rules should also apply to all SOEs," said Mboweni.

At press briefing prior to presenting the budget to MPs, Mboweni relayed how when he served on the board of cement maker PPC, when it experienced financial difficulties, the banks “literally took away the keys from us" and imposed a chief restructuring officer.

“So that's what we are going to do. We will now be installing a chief restructuring officer that in the speech we call a chief reorganisation officer to be our ears and eyes inside every state-owned enterprise that we are going to provide cash for.

"We can't just be providing cash to SOEs and stay back and hope things are going to work. Basically we are going to put them under curatorship, that's how you do things.

"You show your determination to resolve problems … that you are not just a bank but you want to look after every rand and cent that you provide," he added.

Mboweni said the Cabinet was considering a proposal to end the issuing of guarantees for operational purposes.

He said that the expiry dates on guarantees would also be strictly enforced.

"As the president announced, strategic equity partners will be found where possible," said Mboweni.

Last week, public enterprises minister Pravin Gordhan told his oversight committee that logistics utility Transnet was the only state-owned company that was reasonably self-sufficient and doing a good job of reorientating its business.

In his speech, Mboweni said the SOEs posed serious risks to the country's finances.

He reported to parliament that funding requests from SAA, SABC, Denel, Eskom and other financially challenged SOEs had increased, with several requesting state support just to continue operating. 

During the past financial year, the minister revealed, that the total guarantee utilisation increased by R51.1bn whereby Eskom used an additional R50bn of its R350bn guarantee in 2018/19. State arms manufacturer Denel was granted a further R1bn guarantee, while SAA's guaranteed debt increased by R6.2bn.

“Isn't it about time the country asks the question: do we still need these enterprises? If we do, can we manage them better? If we don't need them, what should we do?"

Mboweni congratulated the Land Bank, which repaid debt, reducing government's guarantee exposure. Other entities reduced their guarantees, unfortunately in some cases as a result of appropriations.