FACTBOX: Struggling South African state-owned firms

South African President Cyril Ramaphosa

JOHANNESBURG (Reuters) – South Africa is grappling with multiple problems at its heavily indebted state-owned firms, the most serious of which are at ailing state power utility Eskom.

President Cyril Ramaphosa has made turning around Eskom and other failing state companies a priority as he struggles to reverse years of stagnant growth, injecting billions of rand in rescue funds.

But the problems show few signs of abating, with the biggest power blackouts in a decade shutting down mining operations across the country this week, while the national airline has been placed into a form of bankruptcy protection.

The support has contributed to a fourfold rise in the country’s debt over the last 10 years, pushing it past the 60% of GDP threshold seen as red-line by ratings agencies and investors.Below are some of the state firms which are being kept afloat with bailouts that the government is growing increasingly reluctant to grant.

ESKOM

In October the Treasury said Eskom, which provides 90% of the country’s power but has battled to keep the lights on since 2008, was the “most serious risk” to its fiscal position owing to mostly-government backed debt of nearly 500 billion rand ($34.00 billion).

The utility has total nominal capacity of around 44,000 megawatts (MW) but has struggled to keep pace with demand because its coal-fired power stations are so unreliable.

The government has granted Eskom 230 billion rand over the next 10 years and in October gave it an additional 26 billion rand in emergency funds.

The following month the company said it expected to make a loss of around 20 billion rand for the year ending March 2020.

It is also fighting the energy regulator in court to grant it double digit tariffs increases for the next three years to plug a 100 billion rand revenue hole.

Ramaphosa has initiated a break up of Eskom over the next three years to increase competition, hoping to sell off parts of the monopoly.

SAA

Ramaphosa instructed the government this month to put South African Airways (SAA) into a business rescue – a form of bankruptcy protection – after an eight-day strike in November left it close to collapse.

Formed in 1934, SAA is one of the world’s longest-established airlines but the state-owned carrier has not made a profit since 2011. It made losses of more than 5 billion rand in each of the past three years, according to company documents reviewed by Reuters.

In October, the Treasury said cumulative losses were 28 billion rand since 2006, adding the airline was insolvent and “in its current configuration, unlikely to ever generate sufficient cash flow to sustain its operations.”

Public Enterprises Minister Pravin Gordhan said bailouts for the airline have amounted to more than 20 billion rand in the past three years.

DENEL

Denel is the largest manufacturer of defence equipment in Africa, making military kit for the South African armed forces and clients in Africa, the Gulf and Europe.

The company said in March it was technically insolvent, recording a loss of 1.9 billion rand while struggling to pay salaries and suppliers, prompting the government to hand it a 1.8 billion rand bailout in August.

The government’s total debt guarantee for the arms maker is 4.4 billion rand.

SABC

The South African Broadcasting Commission (SABC) was granted a 3.2 billion rand bailout in October as it continued to bleed viewers and with revenue sinking after years of mismanagement that led to the firing of its entire board in 2018.

The national broadcaster recorded a net loss of 482.4 million rand in 2018/19 after a 622 million rand loss in the previous year. It has said it is considering layoffs. The company’s total liabilities are 3.8 billion rand.

SANRAL

The South African National Roads Agency Limited (SANRAL) has suffered average annual losses of 1 billion rand since 2014/15.

The road authority had already used 30.3 billion rand of its 39 billion rand government guarantee by March, having struggled to break even on a network of electronic highway tolls in the economic heartland of Gauteng.

A majority of drivers have refused to pay the tariffs, leaving the firm deep in the red.

PRASA

The Passenger Rail Agency of South Africa (Prasa) went into administration this week. It said in its annual results that it offered a “service that is poor, unreliable, unpredictable and that is not safe”. Passenger trips have fallen to 208 million in 2018/19 from 516 million in 2014/15.

In the 2018/19 financial year, the rail operator posted a 1.8 billion rand loss.

The Treasury has granted Prasa 41.5 billion rand over the next three years to modernise the rail network.