Budget Speech 2015

Honourable Speaker, state-owned companies play a key role in promoting economic growth and social development. Transnet’s freight modernisation programme, for example, has raised the number of trains that run between Johannesburg and Durban to sixty a day, from fewer than 20 a decade ago.

State-owned companies will invest about R360 billion over the next three years, accounting for about 20 per cent of South Africa’s gross capital formation.

However, the financial position of some state enterprises in unsatisfactory, undermining their ability to contribute toward development.

Recommendations to make our public entities more relevant to South Africa’s developmental needs have been made by the Presidential Review Committee chaired by Ms Ria Phiyega. Reforms are required to ensure that state companies contribute to building a competitive economy and are not an unnecessary drain on the fiscus. Developmental mandates should be appropriately financed and state companies must serve the national interest.

Private investment and partnerships with state-owned companies are elements of our strategy for strengthening infrastructure investment and improving service delivery.

As indicated in last year’s Medium Term Budget Policy Statement, fiscal support to state-owned companies over the period ahead will be financed through offsetting asset sales so that there is no net impact on the budget deficit. The required turnaround in performance and delivery on government priorities will be closely monitored, under the Deputy President’s oversight.

To stabilise its financial position, Eskom will apply to the regulator this year for adjustments towards cost-reflective tariffs. In October 2014 we announced a broad package for Eskom, including a capital injection of R23 billion, governance improvements, operational cost containment, additional borrowing and support for required tariff increases. The fiscal allocation of R23 billion will be paid in three instalments, with the first transfer to be made by June 2015. A special appropriation bill will be tabled, once the finance has been raised. If further support is deemed necessary, consideration will be given to an equity conversion of government’s subordinated loan to Eskom.

Government has also stepped in to address the financial position of South African Airways. SAA reported a net loss of R2.6 billion in 2013/14, as a result of high operating costs, losses on several international routes and valuation adjustments. We have made guarantees of R14.4 billion available to SAA, of which the airline has drawn R8.3 billion. Measures to achieve operational efficiencies and restore profitability are now in progress.

Guarantees have also been provided to the South African Post Office, subject to implementation of its turnaround strategy. This involves revised universal service obligations and delivery targets, taking into account the decline in the mail and courier business and the shift to digital communication. Minister Cwele has appointed an administrator to lead SAPO’s turnaround.